Department of Industrial Policy And
promotion
ministry of Commerce and Industry
government of India
consolidated Fdi Policy
(effective from April 1, 2011)
1
government of India
ministry of Commerce & Industry
department of Industrial Policy & Promotion
(fc Section)
circular 1 of 2011
subject: Consolidated Fdi Policy.
the consolidated Fdi Policy is Attached.
2. this Circular Will Take Effect from April 1, 2011.
(v.bhaskar)
joint Secretary to the Government of India
d/o Ipp F. No. 5(1)/2011-fc Dated 31.03.2011
copy Forwarded To:
1. Press Information Officer, Press Information Bureau- for Giving Wide Publicity to The
above Circular.
2. Be Section for Uploading the Circular On Dipps Website.
3. Department of Economic Affairs, Ministry of Finance, New Delhi
4. Reserve Bank of India, Mumbai
2
i N D E X
description
page
number
chapter-1 Intent and Objective 5
1.1 Intent and Objective
5
chapter-2 Definitions 8
2.1 Definitions
8
chapter-3 Origin, Type, Eligibility,
conditions and Issue/transfer Of
investment
14
3.1 Who Can Invest in India? 14
3.2. Types of Instruments 15
3.3 Entities Into Which Fdi Can Be Made 18
3.4 Conditions On Issue/transfer of Shares 19
3.5 Issue of Instruments
25
chapter-4 Calculation, Entry Route, Caps,
entry Conditions Etc. of Investment
28
4.1 Calculation of Total Foreign Investment I.e. Direct and Indirect Foreign
investment in Indian Companies
28
4.2 Entry Routes for Investment 31
4.3 Caps On Investments 33
4.4 Entry Conditions On Investment 33
4.5 other Conditions On Investment Besides Entry Conditions 33
4.6 Downstream Investment By Indian Companies 34
4.7 Guidelines for Consideration of Fdi Proposals By Fipb 36
4.8 Constitution of Fipb 38
4.9 Approval Levels for Cases Under Government Route 38
4.10 Cases Which Do Not Require Fresh Approval 39
4.11 Online Filing of Applications for Fipb/governments Approval 39
chapter-5 Policy On Route, Caps and Entry
conditions
40
5.1 Prohibition On Investment in India
40
5.2 Sector-specific Policy for Fdi 40
agriculture
40
5.2.1 Agriculture & Animal Husbandry 40
5.2.2 Tea Plantation
42
3
industry 43
mining 43
5.2.3 Mining
43
manufacturing
45
5.2.4 Manufacture of Items Reserved for Production in Micro and Small
enterprises (mses)
45
5.2.5 Defence 46
power
48
5.2.6 Electric Generation, Transmission, Distribution and Trading
48
services Sector
49
5.2.7 Civil Aviation Sector 49
5.2.8 Asset Reconstruction Companies 52
5.2.9 Banking private Sector 53
5.2.10 Banking- Public Sector 55
5.2.11 Broadcasting 56
5.2.12 Commodity Exchanges 57
5.2.13 Development of Townships, Housing, Built-up Infrastructure And
construction-development Projects
58
5.2.14 Credit Information Companies (cic) 61
5.2.15 Industrial Parks Both Setting Up and in Established Industrial Parks 61
5.2.16 Insurance 63
5.2.17 Infrastructure Company in the Securities Market 63
5.2.18 Non-banking Finance Companies (nbfc) 63
5.2.19 Petroleum & Natural Gas Sector 66
5.2.20 Print Media 66
5.2.21 Security Agencies in Private Sector 67
5.2.22 Satellites Establishment and Operation 68
5.2.23 Telecommunication 68
5.2.24 Trading 73
5.2.25 Courier Services for Carrying Packages, Parcels and other Items Which Do
not Come Within the Ambit of the Indian Post Office Act, 1898
76
note 77
chapter-6 Remittance, Reporting And
violation
78
6.1 Remittance and Repatriation 78
6.2 Reporting of Fdi 79
6.3 Adherence to Guidelines/orders and Consequences of Violation
penalties
adjudication and Appeals
compounding Proceedings
82
82
82
83
4
annexures
annex-1-a Form Fc-gpr
84
annex-1-b Form Annual Return On Foreign Liabilities and Assets 91
annex-2 Terms and Conditions for Transfer of Capital Instruments from Resident To
non-resident and Vice-versa
104
annex-3 Documents to Be Submitted By a Person Resident in India for Transfer Of
shares to a Person Resident Outside India By Way of Gift
108
annex-4 Definition of "relative" as Given in Section 6 of Companies Act, 1956
109
annex-5 Report By the Indian Company Receiving Amount of Consideration For
issue of Shares / Convertible Debentures Under the Fdi Scheme
110
annex-6 Know Your Customer (kyc) Form in Respect of the Non-resident
investor
112
annex-7 Form Fc-trs
113
annex-8 Form Dr
118
annex-9 Form Dr - Quarterly
120
5
chapter 1: Intent and Objective
1.1 Intent and Objective
1.1.1 It is the Intent and Objective of the Government to Promote Foreign Direct Investment
through a Policy Framework Which is Transparent, Predictable, Simple and Clear and Reduces
regulatory Burden. the System of Periodic Consolidation and Updation is Introduced as An
investor Friendly Measure.
1.1.2 investment is Usually Understood as Financial Contribution to the Capital of An Enterprise
or Purchase of Shares in the Enterprise. foreign Investment is Investment in An Enterprise By A
non-resident Irrespective of Whether this Involves New Capital or Re-investment of Earnings.
foreign Investment is of Two Kinds (i) Foreign Direct Investment (fdi) and (ii) Foreign
portfolio Investment.
1.1.3 International Monetary Fund (imf) and Organization for Economic Cooperation And
development(oecd) Define Fdi Similarly as a Category of Cross Border Investment Made By A
resident in One Economy (the Direct Investor) with the Objective of Establishing a lasting Interest
in An Enterprise (the Direct Investment Enterprise) that is Resident in An Economy other Than that Of
the Direct Investor. the Motivation of the Direct Investor is a Strategic Long Term Relationship
with the Direct Investment Enterprise to Ensure the Significant Degree of Influence By the Direct
investor in the Management of the Direct Investment Enterprise. Direct Investment Allows The
direct Investor to Gain Access to the Direct Investment Enterprise Which It Might Otherwise Be
unable to Do. the Objectives of Direct Investment are Different from Those of Portfolio Investment
whereby Investors Do Not Generally Expect to Influence the Management of the Enterprise. in The
indian Context, Fdi is Defined in Para 2.1.12 of this Circular.
1.1.4 It is the Policy of the Government of India to Attract and Promote Productive Fdi In
activities Which Significantly Contribute to Industrialization and Socio-economic Development.
fdi Supplements Domestic Capital and Technology.
6
1.1.5 the Legal Basis: Foreign Direct Investment By Non-resident in Resident Entities Through
transfer or Issue of Security to Person Resident Outside India is a capital Account Transaction And
is Regulated Under Fema, 1999 and Its Regulations. Keeping in View the Current Requirements,
the Government from Time to Time Comes Up with New Regulations and Amendments/changes In
the Existing Ones Through Order/allied Rules, Press Notes, Etc. the Department of Industrial
policy and Promotion (dipp), Ministry of Commerce & Industry, Government of India Makes
policy Pronouncements On Fdi Through Press Notes/ Press Releases Which are Notified By The
reserve Bank of India as Amendment to the Foreign Exchange Management (transfer or Issue Of
security By Persons Resident Outside India) Regulations, 2000 (notification No.fema 20/2000-
rb Dated May 3, 2000). These Notifications Take Effect from the Date of Issue of Press Notes/
press Releases, Unless Specified Otherwise Therein. the Procedural Instructions are Issued By The
reserve Bank of India Vide A.p.dir. (series) Circulars. the Regulatory Framework Over a Period
of Time Thus Consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, Etc.
1.1.6 the Circular 1 of 2010 and Circular 2 of 2010 Issued By this Department On 31st March
2010 and 30th September 2010 Respectively, Consolidated Into One Document all the Prior
policies/regulations On Fdi Which are Contained in Fema, 1999, Rbi Regulations Under Fema,
1999 and Press Notes/press Releases/clarifications Issued By Dipp and Reflected the Current
policy Framework On Fdi. the Present Consolidation Subsumes and Supersedes all Press
notes/press Releases/clarifications/ Circulars Issued By Dipp, Which Were in Force as On March
31, 2011, and Reflects the Fdi Policy as On April 1, 2011. this Circular Accordingly Will Take
effect from April 1, 2011. Its Next Revision Will Be Published On 30.09.2011.
1.1.7 Notwithstanding the Rescission of Earlier Press Notes/press
releases/clarifications/circulars, Anything Done or Any Action Taken or Purported to have Been
done or Taken Under the Rescinded Press Notes/press Releases/clarifications/circulars Prior To
april 1, 2011, Shall, in So Far as It is Not Inconsistent with Those Press Notes/press
releases/clarifications/circulars, Be Deemed to have Been Done or Taken Under the Corresponding
provisions of this Circular and Shall Be Valid and Effective.
1.1.8 While this Circular Consolidates Fdi Policy Framework, the Legal Edifice is Built On
notifications Issued By Rbi Under Fema. Therefore, Any Changes Notified By Rbi from Time To
7
time Would have to Be Complied with and Where There is a Need / Scope of Interpretation, The
relevant Fema Notification Will Prevail.
1.1.9 Reference to Any Statute or Legislation Made in this Circular Shall Include
reference to Any Modifications, Amendments or Re-enactments Thereof.
______________________________________________________________________
8
chapter 2: Definitions
2.1 Definitions: the Definitions of Terms Used in this Circular are as Follows:-
2.1.1 ad Category-i Bank Means a Bank( Scheduled Commercial, State or Urban
cooperative) Which is Authorized Under Section 10(1) of Fema to Undertake All
current and Capital Account Transactions According to the Directions Issued By the Rbi
from Time to Time.
2.1.2 authorized Bank Means a Bank Including a Co-operative Bank (other Than An
authorized Dealer) Authorized By the Reserve Bank to Maintain An Account of a Person
resident Outside India
2.1.3 authorized Dealer Means a Person Authorized as An Authorized Dealer Under Subsection
(1) of Section 10 of Fema.
2.1.4 authorized Person Means An Authorized Dealer, Money Changer, Offshore Banking
unit or Any other Person for the Time Being Authorized Under Sub-section (a) Of
section 10 of Fema to Deal in Foreign Exchange or Foreign Securities.
2.1.5 capital Means Equity Shares; Fully, Compulsorily & Mandatorily Convertible
preference Shares; Fully, Compulsorily & Mandatorily Convertible Debentures.
note : Warrants and Partly Paid Shares Can Be Issued to Person/ (s) Resident Outside
india Only After Approval Through the Government Route1.
2.1.6 capital Account Transaction Means a Transaction Which Alters the Assets or Liabilities,
including Contingent Liabilities, Outside India of Persons Resident in India or Assets Or
liabilities in India of Persons Resident Outside India, and Includes Transactions Referred
to in Sub-section (3) of Section 6 of Fema.
2.1.7 a Company is Considered as controlled By Resident Indian Citizens if the Resident
indian Citizens and Indian Companies, Which are Owned and Controlled By Resident
indian Citizens, have the Power to Appoint a Majority of Its Directors in that Company .
1 Review of Fdi Policy to Include Warrants and Partly-paid Shares is Under Consideration of the Government.
9
2.1.8 An Entity is Considered as controlled By non Resident Entities, if Non-residents
have the Power to Appoint a Majority of Its Directors
2.1.9 depository Receipt (dr) Means a Negotiable Security Issued Outside India By A
depository Bank, On Behalf of An Indian Company, Which Represent the Local Rupee
denominated Equity Shares of the Company Held as Deposit By a Custodian Bank In
india. Drs are Traded On Stock Exchanges in the Us, Singapore, Luxembourg, Etc.
drs Listed and Traded in the Us Markets are Known as American Depository Receipts
(adrs) and Those Listed and Traded Anywhere/elsewhere are Known as Global
depository Receipts (gdrs).
2.1.10 erstwhile Overseas Corporate Body (ocb) Means a Company, Partnership Firm,
society and other Corporate Body Owned Directly or Indirectly to the Extent of At Least
sixty Percent By Non-resident Indian and Includes Overseas Trust in Which Not Less Than
sixty Percent Beneficial Interest is Held By Non-resident Indian Directly or Indirectly
but Irrevocably and Which Was in Existence On the Date of Commencement of The
foreign Exchange Management (withdrawal of General Permission to Overseas
corporate Bodies (ocbs) ) Regulations, 2003 (the Regulations) and Immediately
prior to such Commencement Was Eligible to Undertake Transactions Pursuant to The
general Permission Granted Under the Regulations.
2.1.11 foreign Currency Convertible Bond(fccb) Means a Bond Issued By An Indian
company Expressed in Foreign Currency, the Principal and Interest of Which is Payable
in Foreign Currency. Fccbs are Issued in Accordance with the Foreign Currency
convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism)
scheme 1993 and Subscribed By a Non-resident Entity in Foreign Currency And
convertible Into Ordinary Shares of the Issuing Company in Any Manner, Either In
whole, or in Part.
2.1.12 fdi Means Investment By Non-resident Entity/person Resident Outside India in The
capital of the Indian Company Under Schedule 1 of Fem(transfer or Issue of Security
by a Person Resident Outside India) Regulations 2000.
2.1.13 fema Means the Foreign Exchange Management Act 1999 (42 of 1999).
10
2.1.14 fipb Means the Foreign Investment Promotion Board Constituted By The
government of India.
2.1.15 foreign Institutional Investor(fii) Means An Entity Established or Incorporated
outside India Which Proposes to Make Investment in India and Which is Registered as A
fii in Accordance with the Sebi (fii) Regulations 1995.
2.1.16 foreign Venture Capital Investor (fvci) Means An Investor Incorporated And
established Outside India, Which is Registered Under the Securities and Exchange
board of India (foreign Venture Capital Investor) Regulations, 2000 sebi(fvci)
regulations and Proposes to Make Investment in Accordance with These Regulations
2.1.17 government Route Means that Investment in the Capital of Resident Entities By Nonresident
entities Can Be Made Only with the Prior Approval from Fipb, Ministry Of
finance or Sia, Dipp as the Case May Be.
2.1.18 holding Company Would have the Same Meaning as Defined in Companies Act
1956.
2.1.19 indian Company Means a Company Incorporated in India Under the Companies Act,
1956.
2.1.20 indian Venture Capital Undertaking (ivcu) Means An Indian Company:
(i) Whose Shares are Not Listed in a Recognised Stock Exchange in India;
(ii) Which is Engaged in the Business of Providing Services, Production or Manufacture
of Articles or Things, But Does Not Include such Activities or Sectors Which are Specified
in the Negative List By the Sebi, with Approval of Central Government, By Notification
in the Official Gazette in this Behalf.
2.1.21 investing Company Means An Indian Company Holding Only Investments in Other
indian Company/ (ies), Directly or Indirectly, other Than for Trading of Such
holdings/securities.
2.1.22 investment On Repatriable Basis Means Investment, the Sale Proceeds of Which, Net
of Taxes, are Eligible to Be Repatriated Out of India and the Expression investment On
non-repatriable Basis Shall Be Construed Accordingly.
11
2.1.23 joint Venture (jv) Means An Indian Entity Incorporated in Accordance with the Laws
and Regulations in India in Whose Capital a Non-resident Entity Makes An Investment.
2.1.24 non Resident Entity Means a person Resident Outside India as Defined Under Fema.
2.1.25 non Resident Indian (nri) Means An Individual Resident Outside India Who is A
citizen of India or is a Person of Indian Origin.
2.1.26 a Company is Considered as owned By Resident Indian Citizens if More Than 50% Of
the Capital in It is Beneficially Owned By Resident Indian Citizens and / or Indian
companies, Which are Ultimately Owned and Controlled By Resident Indian Citizens;
2.1.27 An Entity is Considered as owned By non Resident Entities, if More Than 50% of The
capital in It is Beneficially Owned By Non-residents.
2.1.28 pab Means Project Approval Board in Dipp, Ministry of Commerce & Industry,
government of India.
2.1.29 person Includes
(i) An Individual
(ii) a Hindu Undivided Family,
(iii) a Company
(iv) a Firm
(v) An Association of Persons or a Body of Individuals Whether Incorporated Or
not,
(vi) Every Artificial Juridical Person, Not Falling Within Any of the Preceding Subclauses,
and
(vii) Any Agency, Office, or Branch Owned or Controlled By such Person.
2.1.30 person of Indian Origin (pio) Means a Citizen of Any Country other Than Bangladesh
or Pakistan, If
(i) He At Any Time Held Indian Passport
(ii) He or Either of His Parents or Any of His Grandparents Was a Citizen of India By
12
virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955);
or
(iii) the Person is a Spouse of An Indian Citizen or a Person Referred to in Subclause
(i) or (ii).
2.1.31 person Resident in India Means -
(i) a Person Residing in India for More Than One Hundred and Eighty-two Days
during the Course of the Preceding Financial Year But Does Not Include
(a) a Person Who Has Gone Out of India or Who Stays Outside India, in Either
case-
(a) for or On Taking Up Employment Outside India, Or
(b) for Carrying On Outside India a Business or Vocation Outside India, Or
(c) for Any other Purpose, in such Circumstances as Would Indicate His
intention to Stay Outside India for An Uncertain Period;
(b) a Person Who Has Come to or Stays in India, in Either Case, Otherwise Than-
(a) for or On Taking Up Employment in India; Or
(b) for Carrying On in India a Business or Vocation in India, Or
(c) for Any other Purpose, in such Circumstances as Would Indicate His
intention to Stay in India for An Uncertain Period;
(ii) Any Person or Body Corporate Registered or Incorporated in India,
(iii) An Office, Branch or Agency in India Owned or Controlled By a Person Resident
outside India,
(iv) An Office, Branch or Agency Outside India Owned or Controlled By a Person
resident in India.
2.1.32 person Resident Outside India Means a Person Who is Not a Person Resident in India.
2.1.33 rbi Means the Reserve Bank of India Established Under the Reserve Bank of India
act, 1934.
2.1.34 resident Entity Means person Resident in India Excluding An Individual.
2.1.35 resident Indian Citizen Shall Be Interpreted in Line with the Definition of person
resident in India as per Fema, 1999, Read in Conjunction with the Indian Citizenship
13
act, 1955.
2.1.36 sebi Means the Securities and Exchange Board of India Established Under The
securities and Exchange Board of India Act, 1992.
2.1.37 sez Means a Special Economic Zone as Defined in Special Economic Zone Act,
2005.
2.1.38 sia Means Secretariat of Industrial Assistance in Dipp, Ministry of Commerce &
industry, Government of India.
2.1.39 transferable Development Rights (tdr) Means Certificates Issued in Respect Of
category of Land Acquired for Public Purposes Either By the Central or State
government in Consideration of Surrender of Land By the Owner Without Monetary
compensation, Which are Transferable in Part or Whole.
2.1.40 venture Capital Fund (vcf) Means a Fund Established in the Form of a Trust, A
company Including a Body Corporate and Registered Under Securities and Exchange
board of India (venture Capital Fund) Regulations, 1996, Which
(i) Has a Dedicated Pool of Capital;
(ii) Raised in the Manner Specified Under the Regulations; And
(iii) Invests in Accordance with the Regulations.
14
chapter 3: Origin, Type, Eligibility, Conditions
and Issue/transfer of Investment
3.1 Who Can Invest in India?
3.1.1 a Non-resident Entity (other Than a Citizen of Pakistan or An Entity Incorporated in Pakistan)
can Invest in India, Subject to the Fdi Policy. a Citizen of Bangladesh or An Entity Incorporated
in Bangladesh Can Invest in India Under the Fdi Policy, Only Under the Government Route.
3.1.2 Nris Resident in Nepal and Bhutan as Well as Citizens of Nepal and Bhutan are Permitted
to Invest in the Capital of Indian Companies On Repatriation Basis, Subject to the Condition that The
amount of Consideration for such Investment Shall Be Paid Only By Way of Inward Remittance In
free Foreign Exchange Through Normal Banking Channels.
3.1.3 Ocbs have Been Derecognized as a Class of Investors in India with Effect from September
16, 2003. Erstwhile Ocbs Which are Incorporated Outside India and are Not Under the Adverse
notice of Rbi Can Make Fresh Investments Under Fdi Policy as Incorporated Non-resident Entities,
with the Prior Approval of Government of India if the Investment is Through Government Route;
and with the Prior Approval of Rbi if the Investment is Through Automatic Route.
3.1.4 (i) An Fii May Invest in the Capital of An Indian Company Under the Portfolio Investment
scheme Which Limits the Individual Holding of An Fii to 10% of the Capital of The
company and the Aggregate Limit for Fii Investment to 24% of the Capital of the Company.
this Aggregate Limit of 24% Can Be Increased to the Sectoral Cap/statutory Ceiling, As
applicable, By the Indian Company Concerned By Passing a Resolution By Its Board Of
directors Followed By Passing of a Special Resolution to that Effect By Its General Body.
the Aggregate Fii Investment, in the Fdi and Portfolio Investment Scheme, Should Be
within the Above Caps.
(ii) the Indian Company Which Has Issued Shares to Fiis Under the Fdi Policy for Which The
payment Has Been Received Directly Into Companys Account Should Report These Figures
separately Under Item No. 5 of Form Fc-gpr (annex-1-a) (post-issue Pattern Of
shareholding) So that the Details Could Be Suitably Reconciled for Statistical/monitoring
purposes.
15
(iii) a Daily Statement in Respect of all Transactions (except Derivative Trade) have to Be
submitted By the Custodian Bank in Floppy / Soft Copy in the Prescribed Format Directly To
rbi to Monitor the Overall Ceiling/sectoral Cap/statutory Ceiling.
3.1.5 No Person other Than Registered Fii/nri as per Schedules Ii and Iii of Foreign Exchange
management (transfer or Issue of Security By a Person Resident Outside India) Regulations Of
fema 1999, Can Invest/trade in Capital of Indian Companies in the Indian Stock Exchanges
directly I.e. Through Brokers like a Person Resident in India.
3.1.6 a Sebi Registered Foreign Venture Capital Investor (fvci) May Contribute Up to 100%
of the Capital of An Indian Venture Capital Undertaking (ivcu) and May also Set Up a Domestic
asset Management Company to Manage the Fund. all such Investments Can Be Made Under The
automatic Route in Terms of Schedule 6 to Notification No. Fema 20. a Sebi Registered Fvci
can also Invest in a Domestic Venture Capital Fund Registered Under the Sebi (venture Capital
fund) Regulations, 1996. such Investments Would also Be Subject to the Extant Fema
regulations and Extant Fdi Policy Including Sectoral Caps, Etc. Sebi Registered Fvcis are Also
allowed to Invest Under the Fdi Scheme, as Non-resident Entities, in other Companies, Subject To
fdi Policy and Fema Regulations.
3.2 Types of Instruments.
3.2.1 Indian Companies Can Issue Equity Shares, Fully, Compulsorily and Mandatorily
convertible Debentures and Fully, Compulsorily and Mandatorily Convertible Preference Shares
subject to Pricing Guidelines/valuation Norms Prescribed Under Fema Regulations. the Price/
conversion Formula of Convertible Capital Instruments Should Be Determined Upfront At the Time
of Issue of the Instruments. 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 [the Dcf Method of Valuation for the Unlisted Companies And
valuation in Terms of Sebi (icdr) Regulations, for the Listed Companies].
3.2.2 other Types of Preference Shares/debentures I.e. Non-convertible, Optionally Convertible Or
partially Convertible for Issue of Which Funds have Been Received On or After May 1, 2007 Are
considered as Debt. Accordingly all Norms Applicable for Ecbs Relating to Eligible Borrowers,
16
recognized Lenders, Amount and Maturity, End-use Stipulations, Etc. Shall Apply. Since These
instruments Would Be Denominated in Rupees, the Rupee Interest Rate Will Be Based On the Swap
equivalent of London Interbank Offered Rate (libor) Plus the Spread as Permissible for Ecbs
of Corresponding Maturity.
3.2.3 the Inward Remittance Received By the Indian Company Vide Issuance of Drs and Fccbs
are Treated as Fdi and Counted Towards Fdi.
3.2.4 Issue of Shares By Indian Companies Under Fccb/adr/gdr
(i) Indian Companies Can Raise Foreign Currency Resources Abroad Through the Issue Of
fccb/dr (adrs/gdrs), in Accordance with the Scheme for Issue of Foreign Currency
convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism)
scheme, 1993 and Guidelines Issued By the Government of India There Under from Time To
time.
(ii) a Company Can Issue Adrs / Gdrs if It is Eligible to Issue Shares to Persons Resident
outside India Under the Fdi Policy. However, An Indian Listed Company, Which is Not
eligible to Raise Funds from the Indian Capital Market Including a Company Which Has
been Restrained from Accessing the Securities Market By the Securities and Exchange
board of India (sebi) Will Not Be Eligible to Issue Adrs/gdrs.
(iii) Unlisted Companies, Which have Not Yet Accessed the Adr/gdr Route for Raising Capital
in the International Market, Would Require Prior or Simultaneous Listing in the Domestic
market, While Seeking to Issue such Overseas Instruments. Unlisted Companies, Which
have Already Issued Adrs/gdrs in the International Market, have to List in the Domestic
market On Making Profit or Within Three Years of such Issue of Adrs/gdrs, Whichever Is
earlier. Adrs / Gdrs are Issued On the Basis of the Ratio Worked Out By the Indian
company in Consultation with the Lead Manager to the Issue. the Proceeds So Raised Have
to Be Kept Abroad Till Actually Required in India. Pending Repatriation or Utilization of The
proceeds, the Indian Company Can Invest the Funds In:-
(a) Deposits, Certificate of Deposits or other Instruments Offered By Banks Rated By
standard and Poor, Fitch, Ibca ,Moodys, Etc. with Rating Not Below the Rating
stipulated By Reserve Bank from Time to Time for the Purpose;
(b) Deposits with Branch/es of Indian Authorized Dealers Outside India; And
17
(c) Treasury Bills and other Monetary Instruments with a Maturity or Unexpired Maturity
of One Year or Less.
(iv) There are No End-use Restrictions Except for a Ban On Deployment / Investment of Such
funds in Real Estate or the Stock Market. There is No Monetary Limit Up to Which An Indian
company Can Raise Adrs / Gdrs.
(v) the Adr / Gdr Proceeds Can Be Utilized for First Stage Acquisition of Shares in The
disinvestment Process of Public Sector Undertakings / Enterprises and also in The
mandatory Second Stage Offer to the Public in View of Their Strategic Importance.
(vi) Voting Rights On Shares Issued Under the Scheme Shall Be as per the Provisions Of
companies Act, 1956 and in a Manner in Which Restrictions On Voting Rights Imposed On
adr/gdr Issues Shall Be Consistent with the Company Law Provisions. Voting Rights In
the Case of Banking Companies Will Continue to Be in Terms of the Provisions of The
banking Regulation Act, 1949 and the Instructions Issued By the Reserve Bank from Time
to Time, as Applicable to all Shareholders Exercising Voting Rights.
(vii) Erstwhile Ocbs Who are Not Eligible to Invest in India and Entities Prohibited From
buying, Selling or Dealing in Securities By Sebi Will Not Be Eligible to Subscribe to Adrs/
gdrs Issued By Indian Companies.
(viii)the Pricing of Adr / Gdr Issues Should Be Made At a Price Determined Under The
provisions of the Scheme of Issue of Foreign Currency Convertible Bonds and Ordinary
shares (through Depository Receipt Mechanism) Scheme, 1993 and Guidelines Issued By
the Government of India and Directions Issued By the Reserve Bank, from Time to Time.
(ix) the Pricing of Sponsored Adrs/gdrs Would Be Determined Under the Provisions of The
scheme of Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through
depository Receipt Mechanism) Scheme, 1993 and Guidelines Issued By the Government
of India and Directions Issued By the Reserve Bank, from Time to Time.
3.2.5 (i) Two-way Fungibility Scheme: a Limited Two-way Fungibility Scheme Has Been Put
in Place By the Government of India for Adrs / Gdrs. Under this Scheme, a Stock Broker In
india, Registered with Sebi, Can Purchase Shares of An Indian Company from the Market For
conversion Into Adrs/gdrs Based On Instructions Received from Overseas Investors. Re18
issuance of Adrs / Gdrs Would Be Permitted to the Extent of Adrs / Gdrs Which have Been
redeemed Into Underlying Shares and Sold in the Indian Market.
(ii) Sponsored Adr/gdr Issue: An Indian Company Can also Sponsor An Issue of Adr / Gdr.
under this Mechanism, the Company Offers Its Resident Shareholders a Choice to Submit Their
shares Back to the Company So that On the Basis of such Shares, Adrs / Gdrs Can Be Issued
abroad. the Proceeds of the Adr / Gdr Issue are Remitted Back to India and Distributed Among
the Resident Investors Who Had Offered Their Rupee Denominated Shares for Conversion. These
proceeds Can Be Kept in Resident Foreign Currency (domestic) Accounts in India By the Resident
shareholders Who have Tendered such Shares for Conversion Into Adrs / Gdrs.
3.3 Entities Into Which Fdi Can Be Made
3.3.1 Fdi in An Indian Company
(i) Indian Companies Including Those Which are Micro and Small Enterprises (mses) Can
issue Capital Against Fdi.
3.3.2 Fdi in Partnership Firm / Proprietary Concern:
(i) a Non-resident Indian (nri) or a Person of Indian Origin (pio) Resident Outside India
can Invest By Way of Contribution to the Capital of a Firm or a Proprietary Concern in India
on Non-repatriation Basis Provided;
(a) Amount is Invested By Inward Remittance or Out of Nre/fcnr(b)/nro Account
maintained with Authorized Dealers / Authorized Banks.
(b) the Firm or Proprietary Concern is Not Engaged in Any Agricultural/plantation or Real
estate Business or Print Media Sector.
(c) Amount Invested Shall Not Be Eligible for Repatriation Outside India.
(ii) Investments with Repatriation Benefits: Nris/pio May Seek Prior Permission of Reserve
bank for Investment in Sole Proprietorship Concerns/partnership Firms with Repatriation
benefits. the Application Will Be Decided in Consultation with the Government of India.
(iii)investment By Non-residents other Than Nris/pio: a Person Resident Outside India Other
than Nris/pio May Make An Application and Seek Prior Approval of Reserve Bank For
making Investment By Way of Contribution to the Capital of a Firm or a Proprietorship
concern or Any Association of Persons in India. the Application Will Be Decided In
consultation with the Government of India.
19
(iv)restrictions: An Nri or Pio is Not Allowed to Invest in a Firm or Proprietorship Concern
engaged in Any Agricultural/plantation Activity or Real Estate Business (i.e. Dealing in Land
and Immovable Property with a View to Earning Profit or Earning Income There From) Or
engaged in Print Media.
3.3.3 Fdi in Venture Capital Fund (vcf): Fvcis are Allowed to Invest in Indian
venture Capital Undertakings (ivcus) /venture Capital Funds (vcfs) /other Companies, As
stated in Paragraph 3.1.6 of this Circular. if a Domestic Vcf is Set Up as a Trust, a Person Resident
outside India (non-resident Entity/individual Including An Nri) Cannot Invest in such Domestic
vcf Under the Automatic Route of the Fdi Scheme and Would Be Allowed Subject to Approval Of
the Fipb. However, if a Domestic Vcf is Set-up as An Incorporated Company Under The
companies Act, 1956, Then a Person Resident Outside India (non-resident Entity/individual
including An Nri) Can Invest in such Domestic Vcf Under the Automatic Route of Fdi Scheme,
subject to the Pricing Guidelines, Reporting Requirements, Mode of Payment, Minimum
capitalization Norms, Etc.
3.3.4 Fdi in Trusts: Fdi in Trusts other Than Vcf is Not Permitted.
3.3.5 Fdi in other Entities2: Fdi in Resident Entities other Than Those Mentioned Above is Not
permitted.
3.4 Conditions On Issue/transfer of Shares
3.4.1 the Capital Instruments Should Be Issued Within 180 Days from the Date of Receipt of The
inward Remittance or By Debit to the Nre/fcnr (b) Account of the Non-resident Investor. In
case, the Capital Instruments are Not Issued Within 180 Days from the Date of Receipt of the Inward
remittance or Date of Debit to the Nre/fcnr (b) Account, the Amount of Consideration So
received Should Be Refunded Immediately to the Non-resident Investor By Outward Remittance
through Normal Banking Channels or By Credit to the Nre/fcnr (b) Account, as the Case May
be. Non-compliance with the Above Provision Would Be Reckoned as a Contravention Under
fema and Would Attract Penal Provisions. in Exceptional Cases, Refund of the Amount Of
2 Review of Fdi Policy to Allow Fdi in Llps is Under Consideration of the Government.
20
consideration Outstanding Beyond a Period of 180 Days from the Date of Receipt May Be
considered By the Rbi, On the Merits of the Case.
3.4.2 Issue Price of Shares Price of Shares Issued to Persons Resident Outside India Under The
fdi Policy, Shall Not Be Less Than -
a. the Price Worked Out in Accordance with the Sebi Guidelines, as Applicable, Where The
shares of the Company is Listed On Any Recognised Stock Exchange in India;
b. the Fair Valuation of Shares Done By a Sebi Registered Category - I Merchant Banker or A
chartered Accountant as per the Discounted Free Cash Flow Method, Where the Shares Of
the Company is Not Listed On Any Recognised Stock Exchange in India ; And
c. the Price as Applicable to Transfer of Shares from Resident to Non-resident as per The
pricing Guidelines Laid Down By the Reserve Bank from Time to Time, Where the Issue Of
shares is On Preferential Allotment.
3.4.3 Foreign Currency Account Indian Companies Which are Eligible to Issue Shares To
persons Resident Outside India Under the Fdi Policy May Be Allowed to Retain the Share
subscription Amount in a Foreign Currency Account, with the Prior Approval of Rbi.
3.4.4 Transfer of Shares and Convertible Debentures
(i) Subject to Fdi Sectoral Policy, Non-resident Investors Can also Invest in Indian Companies
by Purchasing/acquiring Existing Shares from Indian Shareholders or from other Nonresident
shareholders. General Permission Has Been Granted to Non-residents/nris For
acquisition of Shares By Way of Transfer Subject to the Following:
(a) a Person Resident Outside India (other Than Nri and Erstwhile Ocb) May Transfer By
way of Sale or Gift, the Shares or Convertible Debentures to Any Person Resident Outside
india (including Nris).
(b) Nris May Transfer By Way of Sale or Gift the Shares or Convertible Debentures Held By
them to Another Nri.
(c) a Person Resident Outside India Can Transfer Any Security to a Person Resident in India
by Way of Gift.
21
(d) a Person Resident Outside India Can Sell the Shares and Convertible Debentures of An
indian Company On a Recognized Stock Exchange in India Through a Stock Broker
registered with Stock Exchange or a Merchant Banker Registered with Sebi.
(e) a Person Resident in India Can Transfer By Way of Sale, Shares/convertible Debentures
(including Transfer of Subscribers Shares), of An Indian Company in Sectors other Than
financial Services Sectors (i.e. Banks, Nbfc, Insurance, Asset Reconstruction
companies (arcs), Credit Information Companies (cics), Infrastructure Companies
in the Securities Market Viz. Stock Exchanges, Clearing Corporations, And
depositories, Commodity Exchanges, Etc.) Under Private Arrangement to a Person
resident Outside India, Subject to the Guidelines Given in Annex-2.
(f) General Permission is also Available for Transfer of Shares/convertible Debentures, By
way of Sale Under Private Arrangement By a Person Resident Outside India to a Person
resident in India, Subject to the Guidelines Given in Annex-2.
(g) the Above General Permission also Covers Transfer By a Resident to a Non-resident Of
shares/convertible Debentures of An Indian Company, Engaged in An Activity Earlier
covered Under the Government Route But Now Falling Under Automatic Route, as Well
as Transfer of Shares By a Non-resident to An Indian Company Under Buyback And/or
capital Reduction Scheme of the Company. However, this General Permission is Not
available in Case of Transfer of Shares / Debentures, from a Resident to a Non-
resident/non-resident Indian, of An Entity Engaged in Any Activity in the Financial
services Sector (i.e. Banks, Nbfcs, Asset Reconstruction Companies (arcs), Credit
information Companies (cics), Insurance, Infrastructure Companies in the Securities
market such as Stock Exchanges, Clearing Corporations, and Depositories,
commodity Exchanges, Etc.).
(h) the Form Fc-trs Should Be Submitted to the Ad Category-i Bank, Within 60 Days
from the Date of Receipt of the Amount of Consideration. the Onus of Submission Of
the Form Fc-trs Within the Given Timeframe Would Be On the Transferor/transferee,
resident in India.
(ii) the Sale Consideration in Respect of Equity Instruments Purchased By a Person Resident
outside India, Remitted Into India Through Normal Banking Channels, Shall Be Subjected To
a Know Your Customer (kyc) Check By the Remittance Receiving Ad Category I Bank
22
at the Time of Receipt of Funds. in Case, the Remittance Receiving Ad Category I Bank Is
different from the Ad Category I Bank Handling the Transfer Transaction, the Kyc
check Should Be Carried Out By the Remittance Receiving Bank and the Kyc Report Be
submitted By the Customer to the Ad Category I Bank Carrying Out the Transaction Along
with the Form Fc-trs.
(iii) Escrow: Ad Category I Banks have Been Given General Permission to Open Escrow
account and Special Account of Non-resident Corporate for Open Offers / Exit Offers And
delisting of Shares. the Relevant Sebi (sast) Regulations or Any other Applicable Sebi
regulations/ Provisions of the Companies Act, 1956 Will Be Applicable.
3.4.5 Prior Permission of Rbi in Certain Cases for Transfer of Capital Instruments
(i) the Following Instances of Transfer of Capital Instruments from Resident to Non-residents
by Way of Sale Require Prior Approval of Rbi:
(a) Transfer of Capital Instruments of An Indian Company Engaged in Financial Services
sector (i.e. Banks, Nbfcs, Asset Reconstruction Companies (arcs), Credit
information Companies (cics), Insurance Companies, Infrastructure Companies In
the Securities Market such as Stock Exchanges, Clearing Corporations, And
depositories, Commodity Exchanges, Etc.).
(b) Transactions Which Attract the Provisions of Sebi (substantial Acquisition of Shares
& Takeovers) Regulations, 1997.
(c) the Activity of the Indian Company Whose Capital Instruments are Being Transferred
falls Outside the Automatic Route and the Approval of the Government Has Been
obtained for the Said Transfer.
(d) the Transfer is to Take Place At a Price Which Falls Outside the Pricing Guidelines
specified By the Reserve Bank from Time to Time.
(e) Transfer of Capital Instruments Where the Non-resident Acquirer Proposes Deferment Of
payment of the Amount of Consideration, Prior Approval of the Reserve Bank Would Be
required, as Hitherto. Further, in Case Approval is Granted for a Transaction, the Same
should Be Reported in Form Fc-trs, to An Ad Category I Bank for Necessary Due
diligence , Within 60 Days from the Date of Receipt of the Full and Final Amount Of
consideration.
23
(ii) the Transfer of Capital Instruments of Companies Engaged in Sectors Falling Under The
government Route from Residents to Non-residents By Way of Sale or Otherwise Requires
government Approval Followed By Permission from Rbi.
(iii) a Person Resident in India, Who Intends to Transfer Any Capital Instrument, By Way of Gift
to a Person Resident Outside India, Has to Obtain Prior Approval from Reserve Bank. While
forwarding Applications to Reserve Bank for Approval for Transfer of Capital Instruments
by Way of Gift, the Documents Mentioned in Annex-3 Should Be Enclosed. Reserve Bank
considers the Following Factors While Processing such Applications:
(a) the Proposed Transferee (donee) is Eligible to Hold such Capital Instruments Under
schedules 1, 4 and 5 of Notification No. Fema 20/2000-rb Dated May 3, 2000, As
amended from Time to Time.
(b) the Gift Does Not Exceed 5 per Cent of the Paid-up Capital of the Indian Company/each
series of Debentures/each Mutual Fund Scheme.
(c) the Applicable Sectoral Cap Limit in the Indian Company is Not Breached.
(d) the Transferor (donor) and the Proposed Transferee (donee) are Close Relatives As
defined in Section 6 of the Companies Act, 1956, as Amended from Time to Time. The
current List is Reproduced in Annex-4.
(e) the Value of Capital Instruments to Be Transferred Together with Any Capital
instruments Already Transferred By the Transferor, as Gift, to Any Person Residing
outside India Does Not Exceed the Rupee Equivalent of Usd 25,000 During the Calendar
year.
(f) such other Conditions as Stipulated By Reserve Bank in Public Interest from Time To
time.
3.4.6 Conversion of Ecb/lumpsum Fee/royalty Into Equity
(i) Indian Companies have Been Granted General Permission for Conversion of External
commercial Borrowings (ecb) (excluding Those Deemed as Ecb) in Convertible Foreign
currency Into Equity Shares/fully Compulsorily and Mandatorily Convertible Preference
shares, Subject to the Following Conditions and Reporting Requirements.
(a) the Activity of the Company is Covered Under the Automatic Route for Fdi or The
company Has Obtained Government Approval for Foreign Equity in the Company;
24
(b) the Foreign Equity After Conversion of Ecb Into Equity is Within the Sectoral Cap, If
any;
(c) Pricing of Shares is as per the Provision of Para 3.4.2 Above;
(d) Compliance with the Requirements Prescribed Under Any other Statute and Regulation
in Force; And
(e) the Conversion Facility is Available for Ecbs Availed Under the Automatic Or
government Route and is Applicable to Ecbs, Due for Payment or Not, as Well As
secured/unsecured Loans Availed from Non-resident Collaborators.
(ii) General Permission is also Available for Issue of Shares/preference Shares Against Lump
sum Technical Know-how Fee, Royalty, Subject to Entry Route, Sectoral Cap and Pricing
guidelines (as per the Provision of Para 3.4.2 Above) and Compliance with Applicable Tax
laws.
(iii) Issue of Equity Shares Under the Fdi Policy is Allowed Under the Government Route For
the Following Categories:
(i) Import of Capital Goods/ Machinery/ Equipment (including Second-hand Machinery),
subject to Compliance with the Following Conditions:
(a) Any Import of Capital Goods/machinery Etc., Made By a Resident in India, Has to Be
in Accordance with the Export/ Import Policy Issued By Government of India/as
defined By Dgft/fema Provisions Relating to Imports.
(b) There is An Independent Valuation of the Capital Goods/machinery/equipments
(including Second-hand Machinery) By a Third Party Entity, Preferably By An
independent Valuer from the Country of Import Alongwith Production of Copies Of
documents/certificates Issued By the Customs Authorities Towards Assessment of The
fair-value of such Imports.
(c) the Application Clearly Indicating the Beneficial Ownership and Identity of The
importer Company as Well as Overseas Entity.
(d) all such Conversions of Import Payables for Capital Goods Into Fdi Being Done
within 180 Days from the Date of Shipment of Goods.
(ii) Pre-operative/ Pre-incorporation Expenses (including Payments of Rent Etc.), Subject To
compliance with the Following Conditions:
(a) Submission of Firc for Remittance of Funds By the Overseas Promoters for The
expenditure Incurred.
(b) Verification and Certification of the Pre-incorporation/pre-operative Expenses By
the Statutory Auditor.
25
(c) Payments Being Made Directly By the Foreign Investor to the Company. Payments
made Through Third Parties Citing the Absence of a Bank Account or Similar Such
reasons Will Not Be Allowed.
(d) the Capitalization Being Done Within the Stipulated Period of 180 Days Permitted For
retention of Advance Against Equity Under the Extant Fdi Policy.
general Conditions:
(i) all Requests for Conversion Should Be Accompanied By a Special Resolution of The
company.
(ii) Governments Approval Would Be Subject to Pricing Guidelines of Rbi And
appropriate Tax Clearance.
3.5 Issue of Instruments
3.5.1 Issue of Rights/bonus Shares Fema Provisions Allow Indian Companies to Freely
issue Rights/bonus Shares to Existing Non-resident Shareholders, Subject to Adherence to Sectoral
cap, if Any. However, such Issue of Bonus / Rights Shares Has to Be in Accordance with Other
laws/statutes like the Companies Act, 1956, Sebi (issue of Capital and Disclosure
requirements) Regulations, 2009 (in Case of Listed Companies), Etc. the Offer On Right Basis To
the Persons Resident Outside India Shall Be:
(a) in the Case of Shares of a Company Listed On a Recognized Stock Exchange in India, At a Price
as Determined By the Company;
(b) in the Case of Shares of a Company Not Listed On a Recognized Stock Exchange in India, At A
price Which is Not Less Than the Price At Which the Offer On Right Basis is Made to Resident
shareholders.
3.5.2 Prior Permission of Rbi for Rights Issue to Erstwhile Ocbs- Ocbs have Been Derecognised
as a Class of Investors from September 16, 2003. Therefore Companies Desiring To
issue Rights Share to such Erstwhile Ocbs Will have to Take Specific Prior Permission from Rbi.
as Such, Entitlement of Rights Share is Not Automatically Available to Erstwhile Ocbs. However
bonus Shares Can Be Issued to Erstwhile Ocbs Without the Approval of Rbi.
26
3.5.3 Additional Allocation of Rights Share By Residents to Non-residents Existing Nonresident
shareholders are Allowed to Apply for Issue of Additional Shares/ Fully, Compulsorily And
mandatorily Convertible Debentures/ Fully, Compulsorily and Mandatorily Convertible Preference
shares Over and Above Their Rights Share Entitlements. the Investee Company Can Allot The
additional Rights Share Out of Unsubscribed Portion, Subject to the Condition that the Overall Issue
of Shares to Non-residents in the Total Paid-up Capital of the Company Does Not Exceed The
sectoral Cap.
3.5.4 Acquisition of Shares Under Scheme of Merger/demerger/amalgamation
mergers/demergers/ Amalgamations of Companies in India are Usually Governed By An Order
issued By a Competent Court On the Basis of the Scheme Submitted By the Companies Undergoing
merger/demerger/amalgamation. Once the Scheme of Merger or Demerger or Amalgamation Of
two or More Indian Companies Has Been Approved By a Court in India, the Transferee Company Or
new Company is Allowed to Issue Shares to the Shareholders of the Transferor Company Resident
outside India, Subject to the Conditions That:
(i) the Percentage of Shareholding of Persons Resident Outside India in the Transferee or New
company Does Not Exceed the Sectoral Cap, And
(ii) the Transferor Company or the Transferee or the New Company is Not Engaged in Activities
which are Prohibited Under the Fdi Policy .
3.5.5 Issue of Shares Under Employees Stock Option Scheme (esops)
(i) Listed Indian Companies are Allowed to Issue Shares Under the Employees Stock Option
scheme (esops), to Its Employees or Employees of Its Joint Venture or Wholly Owned
subsidiary Abroad Who are Resident Outside India, other Than to the Citizens of Pakistan.
esops Can Be Issued to Citizens of Bangladesh with the Prior Approval of Fipb. Shares
under Esops Can Be Issued Directly or Through a Trust Subject to the Condition That:
(a) the Scheme Has Been Drawn in Terms of Relevant Regulations Issued By the Sebi, And
(b) the Face Value of the Shares to Be Allotted Under the Scheme to the Non-resident
employees Does Not Exceed 5 per Cent of the Paid-up Capital of the Issuing Company.
(ii) Unlisted Companies have to Follow the Provisions of the Companies Act, 1956. The
indian Company Can Issue Esops to Employees Who are Resident Outside India, other Than
to the Citizens of Pakistan. Esops Can Be Issued to the Citizens of Bangladesh with The
prior Approval of the Fipb.
27
(iii)the Issuing Company is Required to Report (plain Paper Reporting) the Details of Granting
of Stock Options Under the Scheme to Non-resident Employees to the Regional Office
concerned of the Reserve Bank and Thereafter the Details of Issue of Shares Subsequent To
the Exercise of such Stock Options Within 30 Days from the Date of Issue of Shares in Form
fc-gpr.
3.5.6 Share Swap: in Cases of Investment By Way of Swap of Shares, Irrespective of The
amount, Valuation of the Shares Will have to Be Made By a Category I Merchant Banker Registered
with Sebi or An Investment Banker Outside India Registered with the Appropriate Regulatory
authority in the Host Country. Approval of the Foreign Investment Promotion Board (fipb) Will
also Be a Prerequisite for Investment By Swap of Shares.
28
chapter 4: Calculation, Entry Route, Caps, Entry
conditions, Etc. of Investment
4.1 Calculation of Total Foreign Investment I.e. Direct And
indirect Foreign Investment in Indian Companies.
4.1.1 Investment in Indian Companies Can Be Made Both By Non-resident as Well as Resident
indian Entities. Any Non-resident Investment in An Indian Company is Direct Foreign Investment.
investment By Resident Indian Entities Could Again Comprise of Both Resident and Non-resident
investment. Thus, such An Indian Company Would have Indirect Foreign Investment if the Indian
investing Company Has Foreign Investment in It. the Indirect Investment Can also Be a Cascading
investment I.e. Through Multi-layered Structure.
4.1.2 for the Purpose of Computation of Indirect Foreign Investment, Foreign Investment In
indian Company Shall Include all Types of Foreign Investments I.e. Fdi; Investment By
fiis(holding as On March 31); Nris; Adrs; Gdrs; Foreign Currency Convertible Bonds
(fccb); Fully, Compulsorily and Mandatorily Convertible Preference Shares And
fully,Compulsorily and Mandatorily Convertible Debentures Regardless of Whether the Said
investments have Been Made Under Schedule 1, 2, 3 and 6 of Fem (transfer or Issue of Security
by Persons Resident Outside India) Regulations, 2000.
4.1.3 Guidelines for Calculation of Total Foreign Investment I.e. Direct and Indirect Foreign
investment in An Indian Company.
(i) Counting the Direct Foreign Investment: all Investment Directly By a Non-resident
entity Into the Indian Company Would Be Counted Towards Foreign Investment.
(ii) Counting of Indirect Foreign Investment:
(a) the Foreign Investment Through the Investing Indian Company Would Not Be
considered for Calculation of the Indirect Foreign Investment in Case of Indian
companies Which are owned and Controlled By Resident Indian Citizens And/or
indian Companies Which are Owned and Controlled By Resident Indian Citizens .
29
(b) for Cases Where Condition (a) Above is Not Satisfied or if the Investing Company Is
owned or Controlled By non Resident Entities, the Entire Investment By the Investing
company Into the Subject Indian Company Would Be Considered as Indirect Foreign
investment,
provided That, as An Exception, the Indirect Foreign Investment in Only the 100% Owned
subsidiaries of Operating-cum-investing/investing Companies, Will Be Limited to The
foreign Investment in the Operating-cum-investing/ Investing Company. this Exception Is
made Since the Downstream Investment of a 100% Owned Subsidiary of the Holding
company is Akin to Investment Made By the Holding Company and the Downstream
investment Should Be a Mirror Image of the Holding Company. this Exception, However,
is Strictly for Those Cases Where the Entire Capital of the Downstream Subsidy is Owned By
the Holding Company.
illustration
to Illustrate, if the Indirect Foreign Investment is Being Calculated for Company X Which
has Investment Through An Investing Company Y Having Foreign Investment, The
following Would Be the Method of Calculation:
(a) Where Company Y Has Foreign Investment Less Than 50%- Company X Would Not Be
taken as Having Any Indirect Foreign Investment Through Company Y.
(b) Where Company Y Has Foreign Investment of Say 75% And:
(i) Invests 26% in Company X, the Entire 26% Investment By Company Y Would Be
treated as Indirect Foreign Investment in Company X;
(ii) Invests 80% in Company X, the Indirect Foreign Investment in Company X Would
be Taken as 80%
(iii) Where Company X is a Wholly Owned Subsidiary of Company Y (i.e. Company Y
owns 100% Shares of Company X), Then Only 75% Would Be Treated as Indirect
foreign Equity and the Balance 25% Would Be Treated as Resident Held Equity. The
indirect Foreign Equity in Company X Would Be Computed in the Ratio of 75: 25 In
the Total Investment of Company Y in Company X.
(iii)the Total Foreign Investment Would Be the Sum Total of Direct and Indirect Foreign
investment.
30
(iv) the Above Methodology of Calculation Would Apply At Every Stage of Investment In
indian Companies and Thus to Each and Every Indian Company.
(v) Additional Conditions:
(a) the Full Details About the Foreign Investment Including Ownership Details Etc. in Indian
company(s) and Information About the Control of the Company(s) Would Be Furnished By
the Company(s) to the Government of India At the Time of Seeking Approval.
(b) in Any Sector/activity, Where Government Approval is Required for Foreign Investment And
in Cases Where There are Any Inter-se Agreements Between/amongst Share-holders Which
have An Effect On the Appointment of the Board of Directors or On the Exercise of Voting
rights or of Creating Voting Rights Disproportionate to Shareholding or Any Incidental
matter Thereof, such Agreements Will have to Be Informed to the Approving Authority. The
approving Authority Will Consider such Inter-se Agreements for Determining Ownership
and Control When Considering the Case for Granting Approval for Foreign Investment.
(c) in all Sectors Attracting Sectoral Caps, the Balance Equity I.e. Beyond the Sectoral Foreign
investment Cap, Would Specifically Be Beneficially Owned By/held With/in the Hands Of
resident Indian Citizens and Indian Companies, Owned and Controlled By Resident Indian
citizens.
(d) in the I& B and Defence Sectors Where the Sectoral Cap is Less Than 49%, the Company
would Need to Be owned and Controlled By Resident Indian Citizens and Indian
companies, Which are Owned and Controlled By Resident Indian Citizens.
(a) for this Purpose, the Equity Held By the Largest Indian Shareholder Would have to Be
at Least 51% of the Total Equity, Excluding the Equity Held By Public Sector Banks And
public Financial Institutions, as Defined in Section 4a of the Companies Act, 1956.
the Term largest Indian Shareholder, Used in this Clause, Will Include Any or A
combination of the Following:
(i) in the Case of An Individual Shareholder,
(aa) the Individual Shareholder,
(bb) a Relative of the Shareholder Within the Meaning of Section 6 of The
companies Act, 1956.
(cc) a Company/ Group of Companies in Which the Individual Shareholder/huf To
which He Belongs Has Management and Controlling Interest.
31
(ii) in the Case of An Indian Company,
(aa) the Indian Company
(bb) a Group of Indian Companies Under the Same Management and Ownership
control.
(b) for the Purpose of this Clause, indian Company Shall Be a Company Which Must
have a Resident Indian or a Relative as Defined Under Section 6 of the Companies Act,
1956/ Huf, Either Singly or in Combination Holding At Least 51% of the Shares.
(c) Provided That, in Case of a Combination of all or Any of the Entities Mentioned in Sub-
clauses (i) and (ii) of Clause 4.1.3(v)(d)(1) Above, Each of the Parties Shall Have
entered Into a Legally Binding Agreement to Act as a Single Unit in Managing The
matters of the Applicant Company.
(e) if a Declaration is Made By Persons as per Section 187c of the Indian Companies Act
about a Beneficial Interest Being Held By a Non Resident Entity, Then Even Though The
investment May Be Made By a Resident Indian Citizen, the Same Shall Be Counted As
foreign Investment.
4.1.4 the Above Mentioned Policy and the Methodology Would Be Applicable for Determining The
total Foreign Investment in all Sectors, Excepting in Sectors Where It is Governed Specifically
under Any Statutes or Rules There Under. the Above Methodology of Determining Direct And
indirect Foreign Investment Therefore Does Not Apply to the Insurance Sector Which Will Continue
to Be Governed By the Relevant Regulation.
4.1.5 Any Foreign Investment Already Made in Accordance with the Guidelines in Existence Prior
to February 13, 2009 (date of Issue of Press Note 2 of 2009) Would Not Require Any Modification
to Conform to These Guidelines. all other Investments, Past and Future, Would Come Under The
ambit of These New Guidelines.
4.2 Entry Routes for Investment:
4.2.1 Investments Can Be Made By Non-residents in the Equity Shares/fully, Compulsorily And
mandatorily Convertible Debentures/ Fully, Compulsorily and Mandatorily Convertible Preference
shares of An Indian Company, Through Two Routes; the Automatic Route and the Government
32
route. Under the Automatic Route, the Non-resident Investor or the Indian Company Does Not
require Any Approval from the Rbi or Government of India for the Investment. Under The
government Route, Prior Approval of the Government of India Through Foreign Investment
promotion Board (fipb) is Required. Proposals for Foreign Investment Under Government Route
as Laid Down in the Fdi Policy from Time to Time, are Considered By the Foreign Investment
promotion Board (fipb) in Department of Economic Affairs (dea), Ministry of Finance.
4.2.2 Guidelines for Establishment of Indian Companies/ Transfer of Ownership or Control
of Indian Companies, from Resident Indian Citizens to Non-resident Entities, in Sectors With
caps:
in Sectors/activities with Caps, Including Inter-alia Defence Production, Air Transport Services,
ground Handling Services, Asset Reconstruction Companies, Private Sector Banking, Broadcasting,
commodity Exchanges, Credit Information Companies, Insurance, Print Media,
telecommunications and Satellites, Government Approval/fipb Approval Would Be Required in All
cases Where:
(i) An Indian Company is Being Established with Foreign Investment and is Owned By a Nonresident
entity Or
(ii) An Indian Company is Being Established with Foreign Investment and is Controlled By a Nonresident
entity Or
(iii) the Control of An Existing Indian Company, Currently Owned or Controlled By Resident Indian
citizens and Indian Companies, Which are Owned or Controlled By Resident Indian Citizens, Will
be/is Being Transferred/passed On to a Non-resident Entity as a Consequence of Transfer of Shares
and/or Fresh Issue of Shares to Non-resident Entities Through Amalgamation, Merger/demerger,
acquisition Etc. Or
(iv) the Ownership of An Existing Indian Company, Currently Owned or Controlled By Resident
indian Citizens and Indian Companies, Which are Owned or Controlled By Resident Indian Citizens,
will Be/is Being Transferred/passed On to a Non-resident Entity as a Consequence of Transfer Of
shares And/or Fresh Issue of Shares to Non-resident Entities Through Amalgamation,
merger/demerger, Acquisition Etc.
(v) It is Clarified that These Guidelines Will Not Apply for Sectors/activities Where There are No
foreign Investment Caps, that Is, 100% Foreign Investment is Permitted Under the Automatic Route.
33
(vi) It is also Clarified that Foreign Investment Shall Include all Types of Foreign Investments I.e.
fdi, Investment By Fiis, Nris, Adrs, Gdrs, Foreign Currency Convertible Bonds (fccb) And
fully, Mandatorily & Compulsorily Convertible Preference Shares/debentures, Regardless Of
whether the Said Investments have Been Made Under Schedule 1, 2, 3 and 6 of Fema (transfer
or Issue of Security By Persons Resident Outside India) Regulations.
4.3 Caps On Investments
4.3.1 Investments Can Be Made By Non-residents in the Capital of a Resident Entity Only to The
extent of the Percentage of the Total Capital as Provided/permitted in the Fdi Policy. Thus While
investment are Prohibited in Some Sectors/activities, There are Restrictions/conditions/caps On The
investment in Certain other Sector/activities. the Caps in Various Sector(s)/activity are Detailed Out
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3 Acre
Central Bank ATM 
Vaishali Nagar Central Park 
Vaishali Nagar Metro Station 
The Thali Restaurant 
HDFC Bank 
Maharaja College 
Ryan International School 
City Pulse Mall 
Eternal Heart Hospital 
Well Maintained
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400000/ sq.ft
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