To

Dear Sirs,

      Attention of authorised dealers is drawn to paragraph 10B.2(i)(d) of the Exchange Control Manual (ECM), regarding foreign investment upto 100% in certain industries/sectors under ‘Automatic Route of Reserve Bank’.

2. Government of India, Ministry of Industry (MOI) vide their Press Note No.1 dated 4th January 1999 (copy enclosed) have expanded Part ‘D’ of the existing Annexure III to include construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours as eligible for 100% foreign investment. Accordingly, Reserve Bank vide its Notification No.F.E.R.A./191/99-RB dated 30th January 1999 (copy enclosed) has extended the general permission granted for issue and export of shares in cases eligible under the Automatic Route of Reserve Bank to cover these activities also.

3. Government of India, Ministry of Industry vide their Press Note No.18 dated 14th December.1998 (copy enclosed) have since revised the guidelines for eligibility of foreign investment/technology transfer under the Automatic Route of Reserve Bank. In terms of the said Press Note any proposal under the Automatic Route of Reserve Bank, either for foreign investment or for technology transfer will be eligible to be entertained only if the foreign partner does not have any previous Joint Venture or technical collaboration or trade mark agreement in India in the same or allied field. Accordingly, it will be the responsibility of the applicant Indian companies to ensure that the above referred condition, if applicable, is complied with and the proposal seeking foreign direct investment or technology transfer is eligible under the Automatic Route of Reserve Bank.

4. In view of the general permission granted vide various notifications issued by Reserve Bank in regard to investment under the Automatic Route of Reserve Bank, Form FC(RBI) is not required to be submitted to Reserve Bank for prior approval. However, Indian companies inviting foreign investment have to file a declaration in Form FC(RBI) with the Regional Office concerned of Reserve Bank. Accordingly, necessary changes to this effect have been incorporated in the form FC(RBI).

5. The following consequential amendments may be carried out in the Exchange Control Manual.

1. Existing sub-paragraph 10B.2(i)(d) may be replaced by Slip 1.

2. In Appendix III under Section 19 Notification No.F.E.R.A.180/98-RB dated 13th January 1998 may be replaced by the Notification as amended upto 30th January 1999 as per Slip 2.
3. First page of form FC(RBI) may be replaced by Slip 3.
4. In item ‘XIV. Declaration’, of Form FC(RBI) existing certificate No.1 may be substituted by Slip 4.
5. In item ‘XI. Declaration’, of Form FT(RBI) existing certificate No.1 may be substituted by Slip 5.

6. Authorised dealers may bring the contents of this circular to the notice of their constituents concerned.

7. The directions contained in this circular have been issued under Section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non-observance thereof is subject to the penalties prescribed under the Act.

Yours faithfully,

Chief General Manager

      In pursuance of clause (a) and clause (d) of sub-section (1) of Section 19 read with clause (b) of sub-section (1) of Section 29 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), the Reserve Bank directs that its Notification No.F.E.R.A.180/98 RB dated 13th January 1998 as amended from time to time (hereinafter referred to as "the said Notification"), shall be amended in the following manner, namely:

In the said Notification, in paragraph 3, in clause (i), for the first proviso, the following proviso shall be substituted, namely:-

1. in respect of the activity of generation and transmission of electric energy (being electric energy produced in hydro-electric power plants, coal/lignite based thermal power plants, oil based thermal power plants and gas based thermal power plants) and
2. in respect of the activity of construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours

Forwarded to the Press Information Bureau to give wide publicity to the contents of the above Press Note.

Press Information Officer,
Press Information Bureau,
New Delhi.

1. The Government have reviewed the present Guidelines relating to approval of foreign/technical collaborations under the automatic route and after careful consideration it has been decided that foreign financial/technical collaborators with previous ventures/tie-up in India would be subjected to the following guidelines.

1. Automatic route for FDI and/or technology collaboration would not be available to those who have or had any previous joint venture or technology transfer/trade-mark agreement in the same or allied field in India. RBI, therefore, have to stipulate necessary declaration before applications for the automatic route are taken on record.
2. Investors of Technology to the suppliers of the above category therefore will have to necessarily seek the FIPB/PAB approval route for joint ventures or the technology transfer agreements (including trade-mark) giving detailed circumstances in which they find it necessary to set-up a new joint venture/enter into new technology transfer (including trade-mark).
3. The onus is clearly on such investors/technology suppliers to provide the requisite justification as also proof to the satisfaction of FIPB/PAB that the new proposal would not in any way jeopardize the interests of the existing joint venture or technology/trade-mark partner or other stakeholders. It will be at the sole discretion of FIPB/PAB to either approve the application with or without conditions or reject in toto duly recording the reasons for doing so.

2. The above procedure will form part of the approval procedures contained in the "Manual on Industrial Policy & Procedures in India" published by SIA, Ministry of Industries, Government of India, which shall stand clarified accordingly in respect of foreign/technical collaborators with previous joint ventures/tie-up in India.

Sd/-
(I. SRINIVAS)
DIRECTOR

F.No.5(23)98-FC.I                                                                                                                        New Delhi, the 14th December, 1998.

Forwarded to the Press Information Bureau for giving wide publicity to the contents of the above Press Note.

Press Information Officer,
Press Information Bureau,
New Delhi.

In pursuance of clause (a) and clause (d) of sub-section (1) of Section 19 read with clause (b) of sub-section (1) of Section 29 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), the Reserve Bank is pleased to permit a company incorporated in India-

1. which is engaged or proposing to engage in an activity specified in the list for the time being in force published by the Ministry of Industry, Government of India, as Annexure III to the Statement on Industrial Policy, 1991 (hereinafter referred to as 'the said Annexure III'); or
2. which is a Trading Company primarily engaged in export, and is registered as an Export/Trading/Star Trading House, with the Ministry of Commerce, Government of India;

to issue shares subject to the conditions mentioned in para 3, to a person who is not a citizen of India (whether resident in India or not) or to a company (other than a banking company) which is not incorporated under any law in force in India, or to non-residents of Indian nationality or origin (NRIs) or to an Overseas Corporate Body, and to send such shares out of India, to their place of residence or incorporation as the case may be;

Provided that a company, existing on the date of this Notification, which is not engaged in the said Annexure III activities shall be eligible to issue shares, if it embarks upon expansion programme predominantly in the said Annexure III activities, subject to the condition that the foreign equity raised by issue of shares to foreign investor is utilised for such expansion.

Provided further that in the case of a newly set-up Trading Company primarily engaged in export, issue of shares shall be subject to the condition that registration as an Export/Trading/Star Trading House is obtained before remittance of dividend to the foreign investor.

Explanation: For the purpose of this Notification -

1. a person (not being a citizen of Pakistan or Bangladesh or Sri Lanka) shall be deemed to be of "Indian Origin', if

1. he, at any time, held an Indian passport; or
2. he or either of his parents or his grandparents was citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955)

2. 'Overseas Corporate Body (OCB)' means any overseas company, partnership firm, society and other corporate body predominantly owned directly or indirectly to the extent of at least 60% by non-residents of Indian Nationality or origin (NRIs) and includes any overseas trust in which not less than 60% beneficial interest is held by NRIs, directly or indirectly but irrevocably.

2. The general permission granted herein shall not apply to or in respect of-

1. a person who is a citizen of, or a company incorporated in, Pakistan or Bangladesh.
2. a company being -

1. manufacturer of items reserved for small scale sector;
2. unit manufacturing items which require industrial licence;
3. unit manufacturing any items of aerospace and defence equipments whether specifically mentioned or not;
4. unit manufacturing any item related to production or use of atomic energy including carrying out of any process, preparatory or ancillary to such production or use, under the Atomic Energy Act, 1962; and
5. 100% Export Oriented Unit and unit in Export Processing Zones.

3. The general permission granted herein to issue shares (hereinafter referred to as 'foreign investment') is subject to the following conditions, namely:

1. the foreign investment shall not in aggregate exceed 50%, 51%, 74% or 100% of the capital of the issuer company, as indicated in the said Annexure III ;

1. in respect of the activity of generation and transmission of electric energy (being electric energy produced in hydro-electric power plants, coal/lignite based thermal power plants, oil based thermal power plants and gas based thermal power plants) and
2. in respect of the activity of construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours,

the capital by way of foreign investment shall not exceed Rs.1500 crores.

Provided further that for the purpose of reckoning the extent of foreign investment under this clause, preference shares carrying a conversion option shall be included.

2. where the issuer company is a Trading Company, foreign investment therein shall not exceed 51% of its capital.

Provided that the ceilings stipulated in clauses (i) and (ii) shall not apply in respect of issue of shares to NRIs and OCBs, and it shall be permissible for the issuer company to issue shares to NRIs and OCBs up to 100% of its equity capital;

3. In the case of issue of shares by an existing company,

1. Board Resolution has been passed in connection with preferential allotment of shares, if any, to foreign investor, indicating the issue price;
2. Special Resolution has been passed under Section 81(1A) of the Companies Act, 1956, wherever applicable, in connection with such preferential allotment, indicating the issue price;
3. In the case of a listed company, the price for the issue is worked out according to SEBI guidelines and is duly certified by the Company's Statutory Auditors; and in the case of any other company, calculation of fair value of shares (as per erstwhile CCI guidelines) is made by an independent Chartered Accountant;

(iii a) In the case of issue of convertible equity shares, the valuation procedure shall conform to the guidelines issued by the Bank or SEBI, as the case may be.

(iv) Approval, wherever necessary, from any authority, statutory or otherwise, required for the project or for issue of shares is obtained by the company;

(v) payment for the shares to be issued to the foreign investor has been received by remittance from abroad through normal banking channels and/or from the NRE/FCNR accounts in the case of issue of shares to NRIs/OCBs;

(vi.a) the rate of dividend payable in respect of preference shares shall not exceed SBI Prime Lending Rate (prevailing on the date of the Board meeting in which issue of shares is recommended) plus 300 basis points.

(vi) remittance of dividend in respect of industries specified in the Annexure hereto, shall be subject to the condition of balancing of dividend over a period of seven years to be reckoned in the case of an existing company, from the date of issue of shares, and in any other cases, from the date of commencement of production;

(vii) no disinvestment of shares by the foreign investor shall be made without the previous permission of the Reserve Bank;

(vii a) the issuer company files with the Regional Office of Reserve Bank, not later than 30 days from the date of receipt of remittance, a report containing the following:

(viii) the issuer company files with the Regional Office of Reserve Bank, not later than thirty days from the date of issue, the following -

(ix) the issuer company shall not be engaged in agricultural/plantation activity, real estate business (excluding real estate development) or as a Nidhi company.

Annexure
(See paragraph 3(vi) of the Notification)