RBI REgulations

Answered by Rajesh Kumar Singh, on Dec 30 at 7:28 am

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Answered by Rajesh Kumar Singh, on Dec 30 at 7:26 am

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FDI Policy as issued by the Ministry of Commerce & Industry Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 (RBI Notification No. FEMA 20 /2000-RB dated 3 May 2000) deals with inbound investment in India (“FEMA inbound investment regulations”). Regulation 5 of FEMA inbound investment regulations, as stated below, provides for foreign investment in Indian companies. The relevant provisions of Regulation 5 are as under: “Reg. 5. Permission for purchase of shares by certain persons resident outside India:- (1)(i) A person resident outside India (other than a citizen of Bangladesh or Pakistan) or an entity incorporated outside India (other than an entity in Bangladesh or Pakistan), may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to the terms and conditions specified in Schedule 1. (3)(ii) A non-resident Indian (“NRI”) may purchase shares or convertible debentures of an Indian company on non-repatriation basis other than under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 4.” The relevant provisions of Schedule I of FEMA inbound investment regulations are reproduced below: Foreign Direct Investment Scheme “Purchase by a person resident outside India of equity/preference/convertible preference shares and convertible debentures issued by an Indian company (1) A person resident outside India referred to in clauses (i) and (ii) of sub-regulation (1) of Regulation 5, may purchase shares or convertible debentures issued by an Indian company up to the extent and subject to the terms and conditions set out in this Schedule.” “5. Issue Price Price of shares issued to persons resident outside India under this Schedule, shall not be less than— (a) the price worked out in accordance with the SEBI guidelines 1[as applicable], where the issuing company is listed on any recognised stock exchange in India, and (b) fair valuation of shares done by a chartered accountant as per the guidelines issued by the erstwhile Controller of Capital issues, in all other cases.” Further the investment by non residents is also subject to the Foreign Direct Investment Policy (“FDI Policy”) of the Government of India as incorporated in FEMA. Annexure B of Schedule I of FEMA inbound investment regulations provides the sectoral cap on investments by Persons Resident outside India: Housing and Real Estate - Investment Cap : 100% Only NRIs are allowed to invest upto 100% in the areas listed below: a) Development of serviced plots and construction of residential premises b) Investment in real estate covering construction of residential and commercial premises including business centers and offices c) Development of townships d) City and regional level urban infrastructure facilities, including both roads and bridges. e) Investment in manufacture of building materials f) Investment in participatory ventures in (a) to (c) above g) Investment in Housing Finance Institutions which is also open to FDI as an NBFC. Hotel & Tourism - Investment cap : 100% The term hotel includes restaurants, beach resorts and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry include travel agencies, tour operation agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports and health units for tourists and Convention /Seminar units and organizations. Schedule IV of FEMA inbound investment regulations provide for non-repatriable investment by NRIs. “Purchase and sale of shares/ convertible debentures by a Non-resident Indian, on Non-Repatriation Basis Prohibition on purchase of shares/ convertible debentures of certain companies No purchase of shares or convertible debentures of an Indian company shall be made under this Scheme if the company concerned is a Chit Fund or a Nidhi company or is engaged in agricultural/plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights Explanation: For the purpose of this paragraph, real estate business shall not include development of township, construction of residential/ commercial premises, roads, bridges, etc.” Press Note 2 (2005 Series) dated 3 March 2005 issued by the Ministry of Commerce and Industry (“Press Note 2”) deals with foreign investment in Real Estate sector. This Press Note 2 provides for Foreign Direct Investment in real estate projects: townships, housing, built-up infrastructure and construction-development projects, as under: “With a view to catalysing investment in townships, housing, built-up infrastructure and construction-development projects as an instrument to generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure, the Government has decided to allow FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure), subject to the following guidelines: a) Minimum area to be developed under each project would be as under: i. In case of development of serviced housing plots, a minimum land area of 10 hectares. ii. In case of construction-development projects, a minimum built up area of 50,000 sq. mts. iii. In case of a combination project, anyone of the above two conditions would suffice. b) The investment would further be subject to the following conditions: i. Minimum capitalization of US$10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company. ii. Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB. c) At least 50% of the project must be developed within a period of five years from the date of obtaining all statutory clearances. The investor would not be permitted to sell undeveloped plots. For the purpose of these guidelines, “undeveloped plots” will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots. d) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/Municipal/Local Body concerned. e) The investor shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/Municipal/Local Body concerned. f) The State Government/Municipal/ Local Body concerned, which approves the building / development plans, would monitor compliance of the above conditions by the developer.” Press Note 4 (2006 Series) dated 10 February 2006 issued by the Ministry of Commerce and Industry. Press Note 4 excludes NRI investors from the applicability of conditions of Press Note 2 referred to above. Accordingly, the conditions such as three years lock in period, etc. as stipulated in Press Note 2 do not apply to NRI investment in real estate projects. The specific clause providing for the same is given below. Construction Development projects, including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure, townships. Investment Cap : 100% Subject to conditions notified vide Press Note 2 (2005 Series) including: a. minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 million for joint venture. The funds would have to be brought within six months of commencement of business of the Company. b. Minimum area to be developed under each project- 10 hectares in case of development of serviced housing plots; and built-up area of 50,000 sq. mts. in case of construction development project; and any of the above in case of a combination project. [Note: For investment by NRIs, the conditions mentioned in Press Note 2 / 2005 are not applicable.]

Answered by B Malani, on Dec 12 at 1:02 pm

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