[G.S.R. 406(E)] ^1   2   

In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999 ( 42 of 1999), the Reserve Bank makes the following regulations to prohibit, restrict or regulate, transfer or issue security by a person resident outside India, namely:

1.

Short title and commencement.

(1)

These Regulations may be called the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000.

(2)

They shall come into effect on the 1st day of June, 2000 .

2.

Definitions.

In these Regulations, unless the context requires otherwise, -

(i)

'Act' means the Foreign Exchange Management Act,1999 (42 of 1999);

¹⁸

(ia)

'Asset Reconstruction Company’ (ARC) means a company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act.

(ii)

'Capital' means equity shares, preference shares, convertible preference shares, and convertible debentures;

³

(iia)

(iii)

'registered Foreign Institutional Investor (FII)' means the foreign institutional investor registered with SEBI;

⁵

(iiia)

Foreign Venture Capital Investor’ means an investor incorporated and established outside India which proposes to make investment in Venture Capital Fund(s) or Venture Capital Undertaking(s) in India and is registered with SEBI under SEBI (Foreign Venture Capital Investors) Regulations, 2000;

 ¹⁹

(iv)

'Government approval' means approval from the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Government of India or as the case may be , Foreign Investment Promotion Board (FIPB) of the Government of India,

(v)

'Indian company' means a company incorporated in India;

⁵

(va) 

‘Indian Venture Capital Undertaking’ means a company incorporated in India whose shares are not listed on a recognized stock exchange in India and which is not engaged in an activity under the negative list specified by SEBI.

(vi)

'Investment on repatriation basis' means an investment the sale proceeds of which are, net of taxes, eligible to be repatriated out of India, and the expression 'Investment on non-repatriation basis', shall be construed accordingly;

(vii)

Joint Venture (JV) and Wholly Owned Subsidiary shall have the meanings respectively assigned to them in the Foreign Exchange Management (Transfer and Issue of Foreign Security) Regulations, 2000;

(a)¹⁶

‘[NRI shall have the same meaning assigned to him under the Foreign Exchange Management (Deposit) Regulations, 2000.]¹¹

(viii)

[***]¹² 'Overseas Corporate Body (OCB)', shall have the meanings respectively assigned to them in the Foreign Exchange Management (Deposit) Regulations,2000.

(ix)

'SEBI' means the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992 ( 15 of 1992);

(x)

'Secretariat for Industrial Assistance' means Secretariat for Industrial Assistance in the Department of Industrial Policy and Promotion , Ministry of Commerce and Industry, Govt. of India;

(xi)

'Transferable Development Rights (TDR)' shall have the same meaning as assigned to it in the Regulations made under sub-section (2) of section 6 of the Act;

⁵

(xia)

‘ Venture Capital Fund ’ means a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 which has a dedicated pool of capital raised in a manner specified under the said Regulations and which invests in Venture Capital Undertakings in accordance with the said Regulations;

(xii)

The words and expressions used but not defined in these Regulations shall have the same meanings respectively assigned to them in the Act.

3.

Restriction on issue or transfer of Security by a person resident outside India.

Save as otherwise provided in the Act, or rules or regulations made thereunder, no person resident outside India shall issue or transfer any security:-

Provided that a security issued prior to, and held on, the date of commencement of these Regulations, shall be deemed to have been issued under these Regulations and shall accordingly be governed by these Regulations

Provided further that the Reserve Bank may, on an application made to it and for sufficient reasons, permit a person resident outside India to issue or transfer any security, subject to such conditions as may be considered necessary.

4.

Restriction on an Indian entity to issue security to a person resident outside India or to record a transfer of security from or to such a person in its books.

Save as otherwise provided in the Act or Rules or Regulations made there under, an Indian entity shall not issue any security to a person resident outside India or shall not record in its books any transfer of security from or to such person:-

Provided that the Reserve Bank may, on an application made to it and for sufficient reasons, permit an entity to issue any security to a person resident outside India or to record in its books transfer of security from or to such person, subject to such conditions as may be considered necessary.

5.

Permission for purchase of shares by certain persons resident outside India.

(2)

A registered Foreign Institutional Investor (FII) may purchase shares or convertible debentures of an Indian company under the Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 2.

⁶

Provided that the FII shall not purchase shares or convertible debentures of an Indian company which is engaged in the print media sector.

¹⁸

Provided further that Foreign Institutional Investors shall not invest in the paid up equity capital of Asset Reconstruction Companies.

(3)⁷

(i)

A Non-resident Indian (NRI) may purchase shares or convertible debentures of an Indian Company on a Stock Exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3, provided that the NRI shall not purchase shares or convertible debentures of an Indian Company which is engaged in Print Media sector.

(ii)

A non-resident Indian [***]¹⁴ 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,provided that the NRI [***]¹⁵ shall not purchase shares or convertible debentures of an Indian Company which is engaged in Print Media sector.

(4)¹⁹

A non-resident Indian or a registered FII or a Foreign Central Bank may purchase securities, other than shares or convertible debentures of an Indian company, subject to the terms and conditions specified in Schedule 5.

(5) ⁵

A Foreign Venture Capital Investor registered with SEBI may make investment in a Venture Capital Fund or an Indian Venture Capital Undertaking, in the manner and subject to the terms and conditions specified in Schedule 6.

⁶

Provided that the Foreign Venture Capital Investor shall not purchase shares or convertible debentures of an Indian company which is engaged in the print media sector.

6.

Acquisition of right shares.

(1)

A person resident outside India may purchase equity or preference shares or convertible debentures offered on right basis by an Indian company which satisfies the conditions specified in sub-regulation (2).[Repatriation of refund of funds received for purchase of shares]⁸

(2)

An Indian company which satisfies the following conditions, may offer to a person resident outside India, equity or preference shares or convertible debentures on right basis, namely:-

i)

The offer on right basis does not result in increase in the percentage of foreign equity already approved, or permissible under the Foreign Direct Investment Scheme in terms of these Regulations;

ii)⁹

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

iii)

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 offer on right basis to the persons resident outside India is at a price which is not lower than that at which the offer is made to resident shareholders;

(3)

The right shares or debentures purchased by the person resident outside India shall be subject to same conditions including restrictions in regard to repatriability as are applicable to the original shares against which right shares or debentures are issued:

Provided that the amount of consideration for purchase of right shares or debentures is paid by way of inward remittance in foreign exchange through normal banking channels or by debit to NRE/FCNR account, when the shares or debentures are issued on repatriation basis:-

Provided further that in respect of the shares or debentures issued on non-repatriation basis, the amount of consideration may also be paid by debit to NRO/NRSR/NRNR account.

6A¹¹

Acquisition of Bonus shares :—

An Indian company may issue bonus shares to its non‑resident shareholders, subject to the following conditions :

(a)

the shares against which bonus shares are issued by the company (hereinafter referred to as ‘the original shares’) were acquired or held by the non-resident shareholder in accordance with the Rules/ Regulations applicable to such acquisition;

(b)

the bonus shares acquired by the non-resident shareholder shall be subject to the same conditions including restrictions in regard to repatriability as are applicable to the original shares

Report to RBI

A company issuing right shares or bonus shares in terms of Regulation 6 or Regulation 6A as the case may be, shall, within thirty days from the date of issue, report the transaction in Form FC-GPR to the Regional Office of the Reserve Bank of India under whose jurisdiction the Registered Office of the company is situated.