Section 6 in The Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004
6. Permission for direct investment in certain cases. - (1) Subject to the conditions specified in sub-regulation (2), [(and regulation 7 in case investment by an Indian party engaged in financial services sector)] [Inserted by Notification No. G.S.R. 607 (E) dated 7.3.2012 (w.e.f. 19.11.2004)] an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India.
[2(i) The total financial commitment of the Indian Party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian Party as on the date of the last audited balance sheet. [Substituted by Notification No. G.S.R. 552(E) dated 14.8.2013 (w.e.f. 19.11.2004)]Explanation: For the purpose of determining the `total financial commitment' within the limit of 100%, or as decided by the Reserve Bank from time to time, of the net worth, the following shall be reckoned, namely:(a)Remittance by market purchases, namely in freely convertible currencies; in case of Bhutan, investment made in freely convertible currencies or equivalent Indian Rupees, in case of Nepal investment made only in Indian Rupees;(b)Capitalization of export proceeds and other dues and entitlements as mentioned in Regulation 11;(c)Hundred per cent of the value of guarantees issued by the Indian party to on or behalf of the joint venture company or wholly owned subsidiary;(d)Investment in agricultural operations through overseas offices or directly;(e)External Commercial Borrowing in conformity with other parameters of the ECB guidelines;(f)Fifty per cent of the value of performance guarantee issued by the Indian party to or on behalf of the JV/WOS.Explanation : In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 100 per cent, or as decided by the Reserve Bank from time to time, of the net worth of the Indian party, the Indian party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation.(g)Hundred per cent of the value of the 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.Overseas direct investment by an Indian party in Pakistan shall henceforth be considered under the approval route under regulation 9 of this Notification.](ii)[ the existing non-resident shareholders may apply for issue of additional shares, and the investee company may allot the same subject to the condition that the overall issue of shares to non-residents in the total paid-up capital does not exceed the sectoral cap;] [Added by G.S.R. No. 223 (E), dated 12.11.2002 (w.e.f. 18.3.2003)](iii)[] [Added by G.S.R. No. 223 (E), dated 12.11.2002 (w.e.f. 18.3.2003)] the existing shares or debentures against which shares or debentures are issued by the company on right basis were acquired and are held by the person resident outside India in accordance with these regulations;(iv)[ The Indian Party has submitted Annual Performance Report in respect of all its overseas investments in the format given in Part III of the Form ODI, as prescribed by the Reserve Bank from time to time.] [Substitued by G.S.R. No. 489 (E), dated 3.7.2014 (w.e.f. 19.11.2004)](3)Investment under this regulation may be funded out of one or more of the following sources, namely:--(i)out of balance held in the Exchange Earners' Foreign Currency account of the Indian party maintained with an authorised dealer in accordance with regulation 4 of Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000;(ii)[drawal of foreign exchange from an authorised dealer in India shall not exceed 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian Party as on the date of last audited balance sheet; [Substituted by Notification No. G.S.R. 552(E) dated 14.8.2013 (w.e.f. 19.11.2004)]Explanation : For the purpose of the limit of 100%, or as decided by the Reserve Bank from time to time, of the net worth, the following shall be reckoned, namely:](a)cash remittance by market purchase;(b)capitalisation of export proceeds and other dues and entitlements as mentioned in regulations 11 and 12;(c)[hundred per cent. of the amount of guarantees] [ Substituted by G.S.R. 13(E), dated 9.10.2007, for " fifty per cent. of the amount of grantees" (w.r.e.f. 14.6.2007).] issued by the Indian party to or on behalf of the Joint Venture company or Wholly Owned Subsidiary.[ Explanation .-An Indian party may offer to a person resident outside India any form of guarantees, that is, corporate or personal/primary or collateral/guarantee by promoter company in India/guarantee by group company, sister concern or associate company in India, provided that:-(a)total "financial commitment" including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian party, and(b)no guarantee is "open ended";](d)utilisation of the amount raised by issue of ADRs/GDRs by the Indian party;(e)external Commercial Borrowing in conformity with other parameters of the ECB guidelines;(f)[ swap of shares;] [ Inserted by G.S.R. 13(E), dated 9.10.2007 (w.r.e.f. 7.7.2004).](g)[ ADR/GDR stock swap subject to the valuation norms and sectoral cap.] [ Inserted by G.S.R. 13(E), dated 9.10.2007 (w.r.e.f. 20.4.2007).](h)[ Fifty per cent of the value of performance guarantee issued by Indian party to or on behalf of the JV/WOS. [Substituted by Notification No. G.S.R. 552(E) dated 14.8.2013 (w.e.f. 19.11.2004)]Explanation : In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian party, the Indian party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation.](i)[ hundred per cent of the value of the 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.] [Inserted by Notification No. G.S.R. 516 (E) dated 8.5.2013 (w.e.f. 28.3.2012)]Explanation .-For the purpose of reckoning net worth of an Indian party, the net worth of its holding company (which holds at least 51% stake in the Indian party) or its subsidiary company (in which the Indian party holds at least 51% stake) may be taken into account to the extent not availed of by the holding company or the subsidiary independently and has furnished a letter of disclaimer in favour of the Indian party:Provided further that the ceiling mentioned in sub-clause (2)(i) shall not apply where the investment is made out of balances held in its EEFC account, maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000, as amended from time to time.(4)[(i) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture/Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture.Notwithstanding the above regulation, the following shall also be permitted.(ii)An Indian Party may extend corporate guarantee on behalf of its first generation step down operating company within the prevailing limit for overseas, direct investment. Explanation: Issue of corporate guarantee on behalf of second level or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued.](iii)[ The indirect resident individual promoters of the Indian party may issue personal guarantee on behalf of the overseas JV/WOS of the Indian party provided the provisions under Regulation 6 are fulfilled by the Indian party and further provided that: [Inserted by Notification No. G.S.R. 516 (E) dated 8.5.2013 (w.e.f. 28.3.2012)]a) total 'financial commitment' including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party andb) no guarantee is 'open ended'.(iv)With prior approval of the Reserve Bank, an Indian party may undertake financial commitment without equity contribution in JV/WOS provided it is as per the business , requirement of the Indian party and also as per the legal requirement of the host country.(v)Compulsorily Convertible Preference Shares (CCPS) shall be treated at par with equity shares and the Indian party is allowed to undertake financial commitment based on the contribution to JV by way of CCPS.](5)An Indian party may make direct investment without any limit in any foreign security out of the proceeds of its international offering of shares through the mechanism of ADR and/or GDR:Provided that--(a)the ADR/GDR issue has been made in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993 and the guidelines issued thereunder from time to time by the Central Government;(b)[ the Indian party files with the designated authorised dealer in Parts I and II of the Form ODI, as prescribed by the Reserve Bank from time to time, full details of the investment proposed.] [ Substituted by Notification No. G.S.R. 489 (E), dated 3.7.2014, (w.e.f. 8.5.2000).](6)(a)For the purposes of investment under this regulation by way of remittance from India in a existing company outside India, the valuation of shares of the company outside India shall be made,--(i)where the investment is more than US $ 5 (Five) million, by a Category I Merchant Banker registered with Securities and Exchange Board of India (SEBI), or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and(ii)in all other cases, by a Chartered Accountant or a Certified Public Accountant.(b)For the purposes of investment under this regulation by acquisition of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party's shares, the valuation of shares of the company outside India shall in all cases, be carried out by a Category I Merchant Banker registered with the Securities and Exchange Board of India (SEBI) or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country.
