Important Definitions ( Section 2)

“capital account transaction” means a transaction which alters the assets or liabilities, including contingent liabili-
ties, 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;
“current account transaction” means a transaction other than a capital account transaction and without prejudice
to the generality of the foregoing such transaction includes
“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 out-side 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;
“person resident outside India” means a person who is not resident in India;
“repatriate to India” means bringing into India the realised foreign exchange and—
(i) the selling of such foreign exchange to an authorised person in India in exchange for rupees, or
(ii) the holding of realised amount in an account with an authorised person in India to the extent notified by the
Reserve Bank,
and includes use of the realised amount for discharge of a debt or liability denominated in foreign exchange and the
expression “repatriation” shall be construed accordingly;
“foreign exchange” means foreign currency and includes,—
(i) deposits, credits and balances payable in any foreign currency,
(ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but
payable in any foreign currency,
(iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside
India, but payable in Indian currency;
Current account transactions.(Section 5)
Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current
account transaction:
Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose
such reasonable restrictions for current account transactions as may be prescribed.
Capital account transactions. (Section 6)
(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an
authorised person for a capital account transaction.
(2) The Reserve Bank may, in consultation with the Central Government, specify—
(a) any class or classes of capital account transactions which are permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions:
Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments
due on account of amortization of loans or for depreciation of direct investments in the ordinary course of business.
(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations,
prohibit, restrict or regulate the following—
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident
outside India;
(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;
(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in
India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in
India;
(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person
resident outside India;
(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred—
(i) by a person resident in India and owed to a person resident outside India; or
(ii) by a person resident outside India.
(4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any
immovable property situated outside India if such currency, security or property was acquired, held or owned by
such person when he was resident outside India or inherited from a person who was resident outside India.
(5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable
property situated in India if such currency, security or property was acquired, held or owned by such person when he
was resident in India or inherited from a person who was resident in India.
(6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit, restrict, or
regulate establishment in India of a branch, office or other place of business by a person resident outside India, for
carrying on any activity relating to such branch, office or other place of business.

Export of goods and services. (Section 7)

(1) Every exporter of goods shall—
(a) furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner as may be
specified, containing true and correct material particulars, including the amount representing the full export value or,
if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having
regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India;
(b) furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of
ensuring the realisation of the export proceeds by such exporter.
(2) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value
of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without
any delay, direct any exporter to comply with such requirements as it deems fit.
(3) Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such
form and in such manner as may be specified, containing the true and correct material particulars in relation to
payment for such services.
Realisation and repatriation of foreign exchange (Section8)
Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to any person
resident in India, such person shall take all reasonable steps to realise and repatriate to India such foreign exchange
within such period and in such manner as may be specified by the Reserve Bank.
Penalties (Section 13)
(1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or
order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation
is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in
such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not
quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand
rupees for every day after the first day during which the contravention continues.
(2) Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks fit in addition
to any penalty which he may impose for such contravention direct that any currency, security or any other money or
property in respect of which the contravention has taken place shall be confiscated to the Central Government and
further direct that the foreign exchange holdings, if any of the persons committing the contraventions or any part
thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in
this behalf.
Explanation.—For the purposes of this sub-section, “property” in respect of which contravention has taken place,
shall include—
(a) deposits in a bank, where the said property is converted into such deposits;
(b) Indian currency, where the said property is converted into that currency; and
(c) any other property which has resulted out of the conversion of that property.
Repeal and saving ( SECTION 39)
(1) The Foreign Exchange Regulation Act, 1973 (46 of 1973) is hereby repealed and the Appellate Board
constituted under sub-section (1) of section 52 of the said Act (hereinafter referred to as the repealed Act) shall stand
dissolved.
(2) On the dissolution of the said Appellate Board, the person appointed as Chairman of the Appellate Board and
every other person appointed as Member and holding office as such immediately before such date shall vacate their
respective offices and no such Chairman or other person shall be entitled to claim any compensation for the
premature termination of the term of his office or of any contract of service.
(3) Notwithstanding anything contained in any other law for the time being in force, no court shall take cognizance
of an offence under the repealed Act and no adjudicating officer shall take notice of any contravention under section
51 of the repealed Act after the expiry of a period of two years from the date of the commencement of this Act.
(4) Subject to the provisions of sub-section (3) all offences committed under the repealed Act shall continue to be
governed by the provisions of the repealed Act as if that Act had not been repealed.
(5) Notwithstanding such repeal,—
(a) anything done or any action taken or purported to have been done or taken including any rule, notification,
inspection, order or notice made or issued or any appointment, confirmation or declaration made or any licence,
permission, authorization or exemption granted or any document or instrument executed or any direction given
under the Act hereby repealed shall, in so far as it is not inconsistent with the provisions of this Act, be deemed to
have been done or taken under the corresponding provisions of this Act;
(b) any appeal preferred to the Appellate Board under sub-section (2) of section 52 of the repealed Act but not
disposed of before the commencement of this Act shall stand transferred to and shall be disposed of by the Appellate
Tribunal constituted under this Act;
(c) every appeal from any decision or order of the Appellate Board under sub-section (3) or sub-section (4) of
section 52 of the repealed Act shall, if not filed before the commencement of this Act, be filed before the High Court
within a period of sixty days of such commencement :
Provided that the High Court may entertain such appeal after the expiry of the said period of sixty days if it is
satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period.
(6) Save as otherwise provided in sub-section (3), the mention of particular matters in sub-sections (2), (4) and (5)
shall not be held to prejudice or affect the general application of section 6 of the General Clauses Act, 1897 (10 of
1897) with regard to the effect of repeal.
Foreign Exchange Management (Current Account Transactions) Rules, 2000
G.S.R. 381(E), dated 3-5-2000 - In exercise of the powers conferred by section 5 and sub-section (1) and clause (a)
of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999, and in consultation with the
Reserve Bank, the Central Government having considered it necessary in the public interest, makes the following
rules, namely :—
Short title and commencement.
1. (1) These rules may be called the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
(2) They shall come into effect on the 1st day of June, 2000.
Definitions.
2. In these rules, unless the context otherwise requires,—
(a) “Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) “Drawal” means drawal of foreign exchange from an authorised person and includes opening of Letter of Credit
or use of International Credit Card or International Debit Card or ATM Card or any other thing by whatever name
called which has the effect of creating foreign exchange liability;
(c) “Schedule” means a schedule appended to these rules;
(d) the words and expressions not defined in these rules but defined in the Act shall have the same meanings
respectively assigned to them in the Act.
Prohibition on drawal of Foreign Exchange.
3. Drawal of foreign exchange by any person for the following purpose is prohibited, namely :
(a) a transaction specified in the Schedule I; or
(b) a travel to Nepal and/or Bhutan; or
(c) a transaction with a person resident in Nepal or Bhutan :
Provided that the prohibition in clause (c) may be exempted by RBI subject to such terms and conditions as it may
consider necessary to stipulate by special or general order.
Prior approval of Government of India.
4. No person shall draw foreign exchange for a transaction included in the Schedule II without prior approval of the
Government of India:
Provided that this Rule shall not apply where the payment is made out of funds held in Resident Foreign Currency
(RFC) Account of the remitter.
Prior approval of Reserve Bank.
5. No person shall draw foreign exchange for a transaction included in the Schedule III without prior approval of the
Reserve Bank:
Provided that this Rule shall not apply where the payment is made out of funds held in Resident Foreign Currency
(RFC) Account of the remitter.
6. (1) Nothing contained in rule 4 or rule 5 shall apply to drawal made out of funds held in Exchange Earners’
Foreign Currency (EEFC) account of the remitter.
(2) Notwithstanding anything contained in sub-rule (1), restrictions imposed under rule 4 or rule 5 shall continue to
apply where the drawal of foreign exchange from the Exchange Earners’ Foreign Currency (EEFC) account is for
the purpose specified in items 10 and 11 of Schedule II, or items, 3, 4, 11, 16 and 17 of Schedule III as the case may
be.
Schedule I
(See Rule 3)
1. Remittance out of lottery winnings.
2. Remittance of income from racing/riding, etc., or any other hobby.
3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc.
4. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned
Subsidiaries abroad of Indian companies.
5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable.
6. Payment of commission on exports under Rupee State Credit Route.
7. Payment related to “Call Back Services” of telephones.
8. Remittance of interest income on funds held in Non-resident Special Rupee Scheme a/c.

Schedule II
(See Rule 4)
Purpose of Remittance Ministry/Department of Govt.
of India whose approval is
required
1. Cultural Tours Ministry of Human Resources Development (Department
of Education and Culture)
2. Advertisement in foreign print media for the Ministry of Finance, Department of Economic Affairs
purposes other than promotion of tourism, foreign
investments and international bidding (exceeding
US$ 10,000) by a State Government and its Public
Sector Undertakings.
3. Remittance of freight of vessel charted by a PSU Ministry of Surface Transport (Chartering Wing)
4. Payment of import by a Govt. Department or a PSU Ministry of Surface Transport (Chartering Wing)
on c.i.f. basis (i.e., other than f.o.b. and f.a.s. basis)
5. Multi-modal transport operators making remittance Registration Certificate from the Director General of
to their agents abroad Shipping
6. Remittance of hiring charges of transponders Ministry of Finance (Department of Economic Affairs).
7. Remittance of container detention charges Ministry of Surface Transport (Director General of
exceeding the rate prescribed by Director General of Shipping)
Shipping
8. Remittances under technical collaboration Ministry of Industry and Commerce
agreements where payment of royalty
exceeds 5% on local sales and 8% on exports and
lump sum payment exceeds US $ 2 million
9. Remittance of prize money/sponsorship of sports Ministry of Human Resource Development (Department
activity abroad by a person other than of Youth Affairs and Sports)
International/National/State Level sports bodies, if
the amount involved exceeds US $ 100,000
10. Payment for securing Insurance for Ministry of Finance (Insurance Division)
 health from a company abroad
11. Remittance for membership of P & I Club Ministry of Finance (Insurance Division)

Schedule III
(See Rule 5)
1. Remittance by artiste e.g., wrestler, dancer, entertainer etc. (This restriction is not applicable to artistes engaged
by tourism related organisations in India like ITDC, State Tourism Development Corporations etc. during special
festivals or those artistes engaged by hotels in five star categories, provided the expenditure is met out of EEFC
account).
2. Release of exchange exceeding US $ 10,000 or its equivalent in one calendar year, for one or more private visits
to any country (except Nepal and Bhutan).
3. Gift remittance exceeding US$ 5,000 per remitter/donor per annum.
4. Donation exceeding US$ 5,000 per remitter/donor per annum.]
5. Exchange facilities exceeding US $ 5,000 for persons going abroad for employment.
6. Exchange facilities for emigration exceeding US $ 5,000 or amount prescribed by country of emigration.
7. Remittance for maintenance of close relatives abroad,
(i) exceeding net salary (after deduction of taxes, contribution to provident fund and other deductions) of a person
who is resident but not permanently resident in India and is a citizen of a foreign State other than Pakistan.
(ii) exceeding US$ 5,000 per year per recipient, in all other cases.
Explanation : For the purpose of this item, a person resident in India on account of his employment of a specified
duration (irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed
three years, is a resident but not permanently resident.
8. Release of foreign exchange, exceeding US $ 25,000 to a person, irrespective of period of stay, for business
travel, or attending a Conference or specialised training or for maintenance expenses of a patient going abroad for
medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical
treatment/check-up.
9. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in
India or hospital/doctor abroad.
10. Release of exchange for studies abroad exceeding the estimates from the institution abroad or US $ 30,000 per
academic year, whichever is higher.
11. Commission to agents abroad for sale of residential flats/commercial plots in India, exceeding 5% of the inward
remittance.
12. Short-term credit to overseas offices of Indian companies.
13. Remittance for advertisement on foreign television by a person whose export earnings are less than Rs. 10 lakhs
during each of the preceding two years.
14. Remittances of royalty and payment of lump sum fee under the technical collaboration agreement which has not
been registered with Reserve Bank.
15. Remittance exceeding US $ 100,000, per project, for any consultancy service procured from outside India.
16. Remittances for use and/or purchase of trade mark/franchise in India.
17. Remittance exceeding US $ 100,000, by an entity in India by way of reimbursement of pre-incorporation
expenses.
Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000
FEMA 3/2000-RB, dated 3-5-2000 [GSR 386(E), dated 3-5-2000] - In exercise of the powers conferred by clause
(d) of sub-section (3) of section 6, sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42
of 1999), the Reserve Bank makes the following regulations for borrowing or lending in foreign exchange by a
person resident in India, namely :—
Short title and commencement.
1. (i) These Regulations may be called the Foreign Exchange Management (Borrowing or Lending in Foreign
Exchange) Regulations, 2000.
(ii) They shall come into force on 1st day of June, 2000.
Definitions.
2. In these regulations, unless the context otherwise requires—
(a) ‘Act’ means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) ‘authorised dealer’ means a person authorised as an authorised dealer under sub-section (1) of section 10 of the
Act;
(c) ‘EEFC account’, ‘RFC account’ mean the accounts referred to in the Foreign Exchange Management (Foreign
Currency Accounts by a Person Resident in India) Regulations, 2000;
(d) ‘FCNR (B) account’, ‘NRE account’ mean the accounts referred to in the Foreign Exchange Management
(Deposit) Regulations, 2000;
(e) ‘Indian entity’ means a company or a body corporate or a firm in India;
(f) ‘Joint Venture abroad’ means a foreign concern formed, registered or incorporated in a foreign country in
accordance with the laws and regulations of that country and in which investment has been made by an Indian
entity;
(g) ‘Schedule’ means the Schedule to these Regulations;
(h) ‘Wholly owned subsidiary abroad’ means a foreign concern formed, registered or incorporated in a foreign
country in accordance with the laws and regulations of that country and whose entire capital is owned by an Indian
entity;
(i) the words and expressions used but not defined in these Regulations shall have the same meaning respectively
assigned to them in the Act.
Prohibition to Borrow or Lend in Foreign Exchange.
3. Save as otherwise provided in the Act, Rules or Regulations made thereunder, no person resident in India shall
borrow or lend in foreign exchange from or to a person resident in or outside India:
Provided that the Reserve Bank may, for sufficient reasons, permit a person to borrow or lend in foreign exchange
from or to a person resident outside India.
Borrowing and Lending in Foreign Exchange by an Authorised dealer.
4. (1) An authorised dealer in India or his branch outside India may lend in foreign currency in the circumstances
and subject to the conditions mentioned below, namely:
(i) A branch outside India of an authorised dealer being a bank incorporated or constituted in India, may extend
foreign currency loans in the normal course of its banking business outside India
(ii) An authorised dealer may grant loans to his constituents in India for meeting their foreign exchange requirements
or for their rupee working capital requirements or capital expenditure subject to compliance with prudential norms,
interest rate directives and guidelines, if any, issued by Reserve Bank in this regard;
(iii) An authorised dealer may extend credit facilities to a wholly owned subsidiary abroad or a joint venture abroad
of an Indian entity:
Provided that not less than 51 per cent of equity in such subsidiary or joint venture is held by the Indian entity
subject to compliance with the Foreign Exchange Management (Transfer and Issue of Foreign Security)
Regulations, 2000;
(iv) An authorised dealer may, in his commercial judgment and in compliance with the prudential norms, grant loans
in foreign exchange to his constituent maintaining RFC Account, against the security of funds held in such account;
(v) A branch outside India of an authorised dealer may extend foreign currency loans against the security of funds
held in NRE/FCNR deposit accounts maintained in accordance with the Foreign Exchange Management (Deposit)
Regulations, 2000;
(vi) Subject to the directions or guidelines issued by the Reserve Bank from time to time, an authorised dealer in
India may extend foreign currency loans to another authorised dealer in India.
(2) An authorised dealer in India may borrow in foreign currency in the circumstances and subject to the conditions
mentioned below, namely:
(i) An authorised dealer may borrow from his Head Office or branch or correspondent outside India upto twenty-
Five per cent of his unimpaired Tier I capital or US $ 10 million, whichever is more, subject to such conditions as
the Reserve Bank may direct.
Explanation.—For the purpose of clause (i), the aggregate loans availed of by all branches in India of the authorised
dealer from his Head Office, all branches and correspondents outside India, shall be reckoned.
(ii) An authorised dealer may borrow in foreign currency without limit from his Head Office or branch or
correspondent outside India for the purpose of replenishing his rupee resources, provided that—
(a) the funds borrowed are utilised for his own business operations and are not invested in call money or similar
other markets;
(b) no repayment of the loan is made without the prior approval of Reserve Bank, which may be granted only if the
authorised dealer has no borrowings outstanding either from Reserve Bank or other bank or financial institution in
India and is clear of all money market borrowings for a period of at least four weeks prior to the week in which the
repayment is made.
(iii) A branch outside India of an authorised dealer being a bank incorporated or constituted in India, may borrow in
foreign currency in the normal course of its banking business outside India, subject to the directions or guidelines
issued by the Reserve Bank from time to time, and the Regulatory Authority of the country where the branch is
located.
(iv) An authorised dealer may borrow in foreign currency from a bank or a financial institution outside India, for the
purpose of granting pre-shipment or post-shipment credit in foreign currency to his exporter constituent, subject to
compliance with the guidelines issued by the Reserve Bank in this regard.
Borrowing and Lending in Foreign Exchange by persons other than authorised dealer.
5. (1) An Indian entity may lend in foreign exchange to its wholly owned subsidiary or joint venture abroad
constituted in accordance with the provisions of Foreign Exchange Management (Transfer or Issue of Foreign
Security) Regulations, 2000.
(2) A person resident in India may borrow, whether by way of loan or overdraft or any other credit facility, from a
bank situated outside India, for execution outside India of a turnkey project or civil construction contract or in
connection with exports on deferred payment terms, provided the terms and conditions stipulated by the authority
which has granted the approval to the project or contract or export in accordance with the Foreign Exchange
Management (Export of Goods and Services) Regulations, 2000.
(3) An importer in India may, for import of goods into India, avail of foreign currency credit for a period not
exceeding six months extended by the overseas supplies of goods, provided the import is in compliance with the
Export Import Policy of the Government of India in force.
(4) A person resident in India may lend in foreign currency out of funds held in his EEFC account, for trade related
purposes to his overseas importer customer :
Provided that,—
(a) the aggregate amount of such loans outstanding at any point of time does not exceed US $ 3 million; and
(b) where the amount of loan exceeds US $ 25,000, a guarantee of a bank of international repute situated outside
India is provided by the overseas borrower in favour of the lender.
(5) Foreign currency loans may be extended by Export Import Bank of India, Industrial Development Bank of India,
Industrial Finance Corporation of India, Industrial Credit and Investment Corporation of India Limited, Small
Industries Development Bank of India Limited or any other institution in India to their constituents in India out of
foreign currency borrowings raised by them with the approval of the Central Government for the purpose of onward
lending.
Other borrowings in foreign exchange with prior approval of Reserve Bank or Government of India.
6. (1) A person resident in India who desires to raise foreign currency loans of the nature or for the purposes
specified in the Schedule and who satisfies the eligibility and other conditions specified in that Schedule, may apply
to the Reserve Bank for approval to raise such loans.
(2) The Reserve Bank may grant its approval subject to such terms and conditions as it may consider necessary :
Provided that while considering the grant of approval, the Reserve Bank shall take into account the overall limit
stipulated by it, in consultation with the Central Government, for availment of such loans by the persons resident in
India.
(3) Any other foreign currency loan proposed to be raised by a person resident in India, which falls outside the scope
of the Schedule, shall require the prior approval of the Central Government.
Schedule
[See Regulation 6]
1. The borrowing in foreign exchange by a person resident in India may be under any of the Schemes set out in this
Schedule.
2. The application for the approval of the Reserve Bank under Regulation 6 for borrowing under any of the Schemes
shall be made in Form ECB annexed to these Regulations.
3. The borrowing in foreign exchange may be from an overseas bank/export credit agency/supplier of equipment or
foreign collaborator, foreign equity holder, NRI, OCB, corporate/institution with a good credit rating from
internationally recognised credit rating agency, or from international capital market by way of issue of bonds,
floating rate notes or any other debt instrument by whatever name called.
4. The borrower shall not utilise the funds borrowed under any of these Schemes for investment in stock market or
in real estate business.
(i) Short-term loan scheme
(a) Foreign currency credit extended by the overseas supplier of goods to an importer of goods for financing import
of goods into India, provided the period of maturity of credit is more than six months but less than three years.
(b) Foreign currency loan/credit extended to an importer in India for financial imports into India, by any bank or
financial institution outside India, provided the period of maturity of loan/credit is less than three years.
(ii) Borrowing under US dollar Five Million Scheme
Borrowing in foreign exchange upto US $ Five Million or its equivalent by an Indian entity for general corporate
purposes at a simple minimum maturity of three years.
(iii) Borrowing under US dollar Ten Million Scheme
Borrowing in foreign exchange not exceeding US $ Ten Million or its equivalent by an Indian entity for the
following purposes :
(a) Borrowing for Financing of Infrastructure Projects :
(i) Borrowing in order to finance equity investment in a subsidiary/joint venture company promoted by the Indian
entity for implementing infrastructure projects, provided that the minimum average maturity of loan is three years.
In case the loan is to be raised by more than one promoter entity for a single project, the aggregate of loan by all
promoters should not exceed US $ 10 million.
(ii) Foreign currency loan raised by an Indian entity for financing infrastructure project, provided that the minimum
average maturity of loan is not less than three years.
(b) Borrowings by Exporter/Foreign Exchange Earner - Borrowing in foreign exchange by an exporter/foreign
exchange earner upto three times of the average amount of his annual foreign exchange earnings during the previous
three years subject to a maximum of US $ Ten million or its equivalent, with a minimum average maturity of three
years.
(c) Long-term borrowings - Borrowing for general corporate purposes at the minimum average maturity of eight
years.
(iv) Scheme for raising loans from NRIs on repatriation basis
Borrowings not exceeding US $ 2,50,000 or its equivalent in foreign exchange by an individual resident in India
from his close relatives resident outside India, subject to the conditions that—
(a) the loan is free of interest;
(b) the minimum maturity period of the loan is seven years
(c) the amount of loan is received by inward remittance in free foreign exchange through normal banking channels
or by debit to the NRE/FCNR account of the non-resident lender;
(d) the loan is utilised for the borrower’s personal purposes or for carrying on his normal business activity but not
for carrying on agricultural/plantation activities, purchase of immovable property or shares/debentures/bonds issued
by companies in India or for re-lending.
Explanation - “Close relative” means relatives as defined in section 6 of the Companies Act, 1956.
Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business)
Regulations, 2000
FEMA 22/2000-RB, dated 3-5-2000 [GSR 408(E), dated 3-5-2000] - In exercise of the powers conferred by sub-
section (6) of section 6 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank makes the
following regulations to prohibit, restrict and regulate establishment in India of a branch or office or other place of
business by a person resident outside India, namely:—
Short title and commencement.
1. (i) These Regulations may be called the Foreign Exchange Management (Establishment in India of Branch or
Office or other Place of Business) Regulations, 2000.
(ii) They shall come into force on 1st day of June, 2000.
Definitions.
2. In these regulations, unless the context otherwise requires—
(a) ‘Act’ means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) ‘foreign company’ means a body corporate incorporated outside India, and includes a firm or other association of
individuals;
(c) ‘Branch’ shall have the meaning assigned to it in sub-section (9) of section 2 of the Companies Act, 1956 (1 of
1956);
(d) ‘Form’ means a Form annexed to these Regulations;
(e) ‘Liaison Office’ means a place of business to act as a channel of communication between the principal place of
business or head office by whatever name called and entities in India but which does not undertake any
commercial/trading/industrial activity, directly or indirectly, and maintains itself out of inward remittances received
from abroad through normal banking channel;
(f) ‘Project Office’ means a place of business to represent the interests of the foreign company executing a project in
India but excludes a Liaison Office;
(g) ‘Site Office’ means a sub-office of the Project Office established at the site of a project but does not include a
Liaison Office;
(h) the words and expressions used but not defined in these Regulations, shall have the same meanings respectively
assigned to them in the Act.
Prohibition against establishing branch or office in India.
3. No person resident outside India shall, without prior approval of the Reserve Bank, establish in India a branch or a
liaison office or a project office or any other place of business by whatever name called:
Provided that no approval shall be necessary for a banking company, if such company has obtained necessary
approval under the provisions of the Banking Regulations Act, 1949.
Prohibition against establishing a branch or office in India by citizens of certain countries.
4. No person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, without prior
permission of the Reserve Bank, shall establish in India, a branch or a liaison office or a project office or any other
place of business by whatever name called.
Application to Reserve Bank for opening branch or liaison or project office, etc.
5. (i) A person resident outside India desiring to establish a branch or liaison office in India shall apply to the
Reserve Bank, in Form FNC 1.
(ii) Where a person resident outside India has secured from an Indian company a contract to execute a project in
India, and
(a) the project is funded directly by inward remittance from abroad;
or
(b) the project is funded by a bilateral or multilateral International Financing Agency;
or
(c) the project has been cleared by an appropriate authority
or
(d) a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution
or a bank in India for the Project,
such person shall apply to the Reserve Bank in Form FNC 1 for permission to establish a Project or Site Office in
India;
(iii) The Reserve Bank may grant permission subject to such terms and conditions as may be considered necessary.
Explanation - For the purpose of this Regulation,
(i) ‘a bilateral or multilateral International Financing Agency’ means the World Bank or the International Monetary
Fund or similar other body;
(ii) “Public Financial Institution” is a public financial institution as defined in section 4A of the Companies Act,
1956
Activities which may be undertaken by the branch or office in India.
6. (i) A person resident outside India permitted by the Reserve Bank under Regulation 5, to establish a branch or a
liaison office in India may undertake or carry on any activity specified in Schedule I or, as the case may be, in
Schedule II, but shall not undertake or carry on other activity unless otherwise specifically permitted by the Reserve
Bank.
(ii) A person resident outside India permitted by the Reserve Bank under Regulation 5, to establish a Project or Site
Office in India shall not undertake or carry on any activity other than the activity relating and incidental to execution
of the project.
Remittance of profit or surplus.
7. A person resident outside India permitted by the Reserve Bank under Regulation 5, to establish a branch or
Project Office in India may remit outside India the profit of the branch or surplus of the Project on its completion,
net of applicable Indian taxes, on production of the following documents, and establishing the net profit or surplus,
as the case may be, to the satisfaction of the authorised dealer through whom the remittance is effected.
I. For remittance of profit of a branch,—
(a) certified copy of the audited balance-sheet and profit and loss account for the relevant year;
(b) a Chartered Accountant’s certificate certifying,—
(i) the manner of arriving at the remittable profit,
(ii) that the entire remittable profit has been earned by undertaking the permitted activities, and
(iii) that the profit does not include any profit on revaluation of the assets of the branch.
II. For remittance of surplus on completion of the Project,—
(a) certified copy of the final audited project accounts;
(b) a Chartered Accountant’s certificate showing the manner of arriving at the remittable surplus;
(c) income-tax assessment order or either documentary evidence showing payment of income-tax and other
applicable taxes, or a Chartered Accountant’s certificate stating that sufficient funds have been set aside for meeting
all Indian tax liabilities; and
(d) auditor’s certificate stating that no statutory liabilities in respect of the Project are outstanding.
Schedule I
[See Regulation 6(i)]
Permitted activities for a branch in India of a person
resident outside India
(i) Export/Import of goods
(ii) Rendering professional or consultancy services.
(iii) Carrying out research work, in which the parent company is engaged.
(iv) Promoting technical or financial collaborations between Indian companies and parent or overseas group
company
(v) Representing the parent company in India and acting as buying/selling agent in India
(vi) Rendering services in Information Technology and development of software in India
(vii) Rendering technical support to the products supplied by parent/group companies
(viii) Foreign airline/shipping company.
Schedule II
[See Regulation 6(i)]
Permitted activities for a Liaison office in India of a
person resident outside India
(i) Representing in India the parent company/group companies.
(ii) Promoting export import from/to India.
(iii) Promoting technical/financial collaborations between parent/group companies and companies in India.
(iv) Acting as a communication channel between the parent company and Indian companies.
Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India)
Regulations, 20001
FEMA 20/2000-RB, dated 3-5-2000 [GSR 406(E), dated 3-5-2000] - 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:—
Short title and commencement.
1. (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.
Definitions.
2. In these Regulations, unless the context requires otherwise,—
(i) ‘Act’ means the Foreign Exchange Management Act, 1999 (42 of 1999);
(ii) ‘Capital’ means equity shares, preference shares, convertible preference shares, and convertible debentures;
(iii) ‘registered Foreign Institutional Investor (FII)’ means the foreign institutional investor registered with SEBI
(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;
(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;
(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;
(viii) ‘Non-resident Indian (NRI)’, ‘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;
(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.
Restriction on issue or transfer of Security by a person resident outside India.
3. 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.
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.
4. Save as otherwise provided in the Act or Rules or Regulations made thereunder, 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.
Permission for purchase of shares by certain persons resident outside India.
5. (1) A person resident outside India (other than a citizen of Bangladesh or Pakistan or Sri Lanka) or an entity
outside India, whether incorporated or not (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.
(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 :
Provided that the FII shall not purchase shares or convertible debentures of an Indian company which is engaged in
the print media sector.
(3) (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 or an Overseas Corporate Body 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 or OCB shall not purchase shares or convertible
debentures of an Indian Company which is engaged in Print Media sector.]
(4) A non-resident Indian or an overseas corporate body or a registered FII may purchase securities, other than
shares or convertible debentures of an Indian company, subject to the terms and conditions specified in Schedule 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 :
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.
Acquisition of right shares.
6. (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).
(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) 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;
(iii) 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.
Issue and acquisition of shares after merger or de-merger or amalgamation of Indian companies.
7. Where a Scheme of merger or amalgamation of two or more Indian companies or a reconstruction by way of de-
merger or otherwise of an Indian company, has been approved by a Court in India, the transferee company or, as the
case may be, the new company may issue shares to the shareholders of the transferor company resident outside
India, subject to the following conditions, namely :
(a) the percentage of shareholding of persons resident outside India in the transferee or new company does not
exceed the percentage specified in the approval granted by the Central Government or the Reserve Bank, or
specified in these Regulations :
Provided that where the percentage is likely to exceed the percentage specified in the approval or the Regulations,
the transferor company or the transferee or new company may, after obtaining an approval from the Central
Government, apply to the Reserve Bank for its approval under these Regulations;
(b) the transferor company or the transferee or new company shall not engage in agriculture, plantation or real
estate business or trading in TDRs; and
(c) the transferee or the new company files a report within 30 days with the Reserve Bank giving full details of the
shares held by persons resident outside India in the transferor and the transferee or the new company, before and
after the merger/amalgamation/reconstruction, and also furnishes a confirmation that all the terms and conditions
stipulated in the scheme approved by the Court have been complied with.
Issue of shares under Employees Stock Options Scheme to persons resident outside India.
8. (1) An Indian company may issue shares under the Employees’ Stock Options Scheme, by whatever name
called, to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident
outside India, directly or through a Trust :
Provided that
(a) the scheme has been drawn in terms of regulations issued under the Securities and Exchange Board of India Act,
1992; and
(b) 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.
(2) The Trust and the issuing company shall ensure that value of shares held by persons resident outside India under
the scheme does not exceed the limit specified in clause (b) of sub-regulation (1).
(3) The issuing company shall furnish to the Reserve Bank, within thirty days from the date of issue of shares under
the scheme, a report giving the following particulars/documents,—
(i) names of persons to whom shares are issued under the scheme and number of shares issued to each of them;
(ii) a certificate from the Company Secretary of the issuing company that the value of shares issued under the
scheme does not exceed 5 per cent of the paid-up capital of the issuing company and that the shares are issued in
compliance with the regulations issued by the SEBI in this behalf.
Transfer of shares and convertible debentures of an Indian company by a person resident outside India.
9. (1) Subject to the provisions of sub-regulation (2), a person resident outside India holding the shares or
debentures of an Indian company in accordance with these Regulations, may transfer the shares or debentures so
held by him, in compliance with the conditions specified in the relevant Schedule of these regulations.
(2)(i) A person resident outside India, not being a non-resident Indian or an overseas corporate body, may transfer by
way of sale, the shares or convertible debentures held by him to any person resident outside India :
Provided that the person to whom the shares are being transferred has obtained prior permission of Central
Government to acquire the shares if he has previous venture or tie up in India through investment in shares or
debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the
same field or allied field in which the Indian company whose shares are being transferred is engaged.
(ii) A non-resident Indian or an overseas corporate body may transfer by way of sale, the shares or convertible
debentures held by him or it to another non-resident Indian or an overseas corporate body only.
(iii) A person resident outside India may transfer any security held by him, to a person resident in India by way of
gift.
Prior permission of Reserve Bank in certain cases for transfer of security.
10. A. Transfer by way of gift or sale by a person resident in India
A person resident in India who proposes to transfer to a person resident outside India :—
(a) any security, by way of gift, shall make an application to the Reserve Bank furnishing the following information,
namely :
(i) Name and address of the transferor and the proposed transferee
(ii) Relationship between the transferor and the proposed transferee
(iii) Reasons for making the gift;
(b) any share/convertible debenture of an Indian company, by way of sale,
shall obtain the Government approval for the transfer and thereafter apply to the Reserve Bank for its approval,
which may be granted subject to such conditions as are considered necessary by Reserve Bank, including the price
at which such sale may be made.
B. Transfer by way of sale not covered by Regulation 9 by a person resident outside India
(1) Transfer by way of sale not covered by Regulation 9 by a person resident outside India of the shares/convertible
debentures held by him to a person resident in India, shall require prior permission of the Reserve Bank, for which
application in Form TS 1 may be made to the Reserve Bank.
(2) While considering the grant of permission, the Reserve Bank shall take into account the following factors,
namely :—
(a) where the shares of an Indian company are traded on stock exchange,
(i) the sale is at the prevailing market price on stock exchange and is effected through a merchant banker registered
with Securities and Exchange Board of India or through a stock broker registered with the stock exchange;
(ii) if the transfer is other than that referred to in clause (i), the Reserve Bank will satisfy itself that the shares are
proposed to be sold at a price arrived at by taking the average quotations (average of daily high and low) for one
week preceding the date of application with 5 per cent variation. Where, however, the shares are being sold by the
foreign collaborator or the foreign promoter of the Indian company to the existing promoters in India with the object
of passing management-control in favour of the resident promoters the proposal for sale will be considered at a price
which may be higher by upto a ceiling of 25 per cent over the price arrived at as above,
(b) where the shares of an Indian company are not listed on stock exchange or are thinly traded,
(i) if the consideration payable for the transfer does not exceed Rs. 20 lakh per seller per company, at a price
mutually agreed to between the seller and the buyer, based on any valuation methodology currently in vogue, on
submission of a certificate from the statutory auditors of the Indian company whose shares are proposed to be
transferred, regarding the valuation of the shares, and
(ii) if the amount of consideration payable for the transfer exceeds Rs. 20 lakhs per seller per company, at a price
arrived at, at the seller’s option, in any of the following manner, namely:
(A) a price based on earning per share (EPS) linked to the Price Earning (P/E) multiple, or a price based on the Net
Asset Value (NAV) linked to book value multiple, whichever is higher,
or
(B) the prevailing market price in small lots as may be laid down by the Reserve Bank so that the entire
shareholding is sold in not less than five trading days through screen based trading system,
(c) where the shares are not listed on any stock exchange, at a price which is lower of the two independent
valuations of share, one by statutory auditors of the company and the other by a Chartered Accountant or by a
Merchant Banker in Category 1 registered with Securities and Exchange Board of India.
Explanation :
(i) A share is considered as thinly traded if the annualised trading turnover in that share, on main stock exchanges in
India, during the six calendar months preceding the month in which application is made, is less than 2 per cent (by
number of shares) of the listed stock.
(ii) For the purpose of arriving at Net Asset Value per share, the miscellaneous expenses carried forward,
accumulated losses, total outside liabilities, revaluation reserves and capital reserves (except subsidy received in
cash) shall be reduced from value of the total assets and the net figure so arrived at shall be divided by the number of
equity shares issued and paid-up. Alternatively, intangible assets shall be reduced from the equity capital and
reserves (excluding revaluation reserves) and the figure so arrived at shall be divided by the number of equity shares
issued and paid-up. The NAV so calculated shall be used in conjunction with the average BV multiple of Bombay
Stock Exchange National Index during the calendar month immediately preceding the month in which application is
made and BV multiple shall be discounted by 40 per cent.
(iii) For computing the price based on Earning Per Share, the earning per share as per the latest balance sheet of the
company shall be used in conjunction with the average Price Earning Multiple of Bombay Stock Exchange National
Index for the calendar month preceding the month in which application is made and Price Earning shall be
discounted by 40 per cent.
Remittance of sale proceeds.
11. (1) No remittance of sale proceeds of an Indian security held by a person resident outside India shall be made
otherwise than in accordance with these Regulations and the conditions specified in the relevant Schedule.
(2) An authorised dealer may allow the remittance of sale proceeds of a security (net of applicable taxes) to the seller
of shares resident outside India :
Provided—
(a) the security was held by the seller on repatriation basis;
(b) either the security has been sold on a recognised stock exchange in India through a stock broker at the ruling
market price as determined on the floor of the exchange, or the Reserve Bank’s approval has been obtained in other
cases for sale of the security and remittance of the sale proceeds thereof; and
(c) a no objection/tax clearance certificate from the income-tax authority has been produced.
Schedule 1
[See Regulation 5(1)]
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. (1) A person resident outside India referred to in 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.
(2) If the person purchasing the shares under this Scheme proposes to be collaborator or proposes to acquire the
entire shareholding of a new Indian company, he should obtain a prior permission of Central Government if he has a
previous venture or tie-up in India through investment in shares or debentures or a technical collaboration or a trade-
mark agreement or investment by whatever name called in the same field or allied field in which the Indian
company issuing the shares is engaged.
Automatic Route of Reserve Bank for Issue of shares by an Indian company.
2. (1) An Indian company which is not engaged in any activity, or in manufacturing of item included in Annexure
‘A’ to this Schedule, may issue shares or convertible debentures to a person resident outside India, referred to in
paragraph 1 upto the extent specified in Annexure B, subject to compliance with the provisions of the Industrial
Policy and Procedures as notified by Secretariat for Industrial Assistance (SIA) in the Ministry of Commerce and
Industry, Govt. of India, from time to time :
Provided that
(i) the activity of the issuer company does not require an industrial licence under the provisions of the Industries
(Development & Regulation) Act, 1951 or under the locational policy notified by Government of India under the
Industrial Policy of 1991 as amended from time to time;
(ii) the shares or convertible debentures are not being issued by the Indian company with a view to acquiring
existing shares of any Indian company.
Explanation : A company which proposes to embark on expansion programme to undertake activities or manufacture
items included in Annexure B to this Schedule may issue shares or debentures out of fresh capital proposed to be
issued by it for the purpose of financing expansion programme, upto the extent indicated in Annexure B, subject to
compliance with the provisions of this paragraph.
(2) A trading company incorporated in India may issue shares or convertible debentures to the extent of 51 per cent
of its capital, to persons resident outside India referred to paragraph 1, subject to the condition that remittance of
dividend to the shareholders outside India is made only after the company has secured registration as an
Export/Trading/Star Trading/Super Trading House from the Directorate General of Foreign Trade, Ministry of
Commerce, Government of India, New Delhi.
(3) A company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of
items included in Annexure A, may issue shares or convertible debentures to a person referred to in paragraph 1, to
the extent of 24% of its paid-up capital :
Provided that such a company may issue shares in excess of 24% of its paid-up capital if—
(a) it has given up its small scale status;
(b) it is not engaged or does not propose to engage in manufacture of items reserved for small scale sector; and
(c) it complies with the ceilings specified in Annexure B.
(4) Notwithstanding anything contained in clause (3) an Export Oriented Unit or a Unit in Free Trade Zone or in
Export Processing Zone or in a Software Technology Park or in an Electronic Hardware Technology Park may issue
shares or convertible debentures to a person resident outside India referred to in paragraph 1 in excess of 24 per cent
provided it complies with the ceilings specified in Annexure B.
Issue of shares by a company requiring the Government approval.
3. A company which is engaged or proposes to engage in any activity specified in Annexure ‘A’ or which proposes to
issue shares to a person resident outside India beyond the sectoral limits stipulated in Annexure ‘B’ or which is
otherwise not eligible to issue shares to a person resident outside India, may issue shares to a person resident outside
India referred to in paragraph 1, provided it has secured prior approval of Secretariat for Industrial Assistance or as
the case may be of the Foreign Investment Promotion Board of the Government of India and the terms and
conditions of such an approval are complied with.
Issue of Shares by International offering through ADR and/or GDR.
4. (1) An Indian company may issue its Rupee denominated shares to a person resident outside India being a
depository for the purpose of issuing Global Depository Receipts (GDRs) and/or American Depository Receipts
(ADRs) :
Provided the Indian company issuing such shares—
(a) has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is
eligible to issue ADRs/GDRs in terms of the relevant scheme in force or notification issued by the Ministry of
Finance, and
(b) is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations, and
(c) the ADRs/GDRs are issued 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 Central
Government thereunder from time to time.
(2) The Indian company issuing shares under sub-paragraph (1), shall furnish to the Reserve Bank, full details of
such issue in the form specified in Annexure ‘C’, within 30 days from the date of closing of the issue.
(3) The Indian company issuing shares against ADRs/GDRs shall furnish a quarterly return in the form specified in
Annexure ‘D’ to Reserve Bank within fifteen days of the close of the calendar quarter.
(4) Pending repatriation or utilisation of foreign exchange resources raised in terms of clause (1) the Indian company
may invest the foreign currency funds in—
(a) deposits with or Certificate of Deposits or other instruments of banks who have been rated not less than A1+ by
Standard and Poor or P1 by Moody’s for short term obligations,
(b) deposits with branch outside India of an authorised dealer in India, and
(c) treasury bills and other monetary instruments with a maturity or un-expired maturity of the instrument of one
year or less.
4A. A registered broker in India may purchase shares of an Indian Company on behalf of a person resident outside
India, for the purpose of converting the shares so purchased into ADRs/GDRs :
Provided that—
(i) the shares are purchased on a recognized stock exchange;
(ii) the Indian company has issued ADRs/GDRs;
(iii) the shares are purchased with the permission of Custodian of the ADRs/GDRs of the concerned Indian
company and are deposited with the Custodian;
(iv) the number of shares so purchased shall not exceed ADRs/GDRs converted into underlying shares and shall be
subject to sectoral caps as applicable;
(v) the non-resident investor, broker, Custodian and the overseas depository comply with the provisions of the
Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt
Mechanism) Scheme, 1993 and guidelines issued thereunder by the Central Government from time to time.
4B. (i) An Indian company may sponsor an issue of ADRs/GDRs with an overseas depository against shares held
by its shareholders at a price to be determined by the Lead Manager.
(ii) The proceeds of the issue shall be repatriated to India within a period of one month.
(iii) The sponsoring company shall comply with the provisions of the Scheme for Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines
issued thereunder by the Central Government from time to time;
(iv) The sponsoring company shall furnish full details of such issue in a form specified in Annexure C to the
Foreign Investment Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai within
30 days from the date of closure of the issue.]
Issue price.
5. 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, 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.
Dividend Balancing.
6. Where a company is engaged in any of the industries in the consumer goods sector, specified in Annexure E, or in
any other activity where the condition of dividend balancing has been stipulated in terms of the provisions of
Industrial Policy and Procedures notified by Secretariat for Industrial Assistance, the cumulative outflow of foreign
exchange on account of payment of dividend over a period of seven years from the date of commencement of
commercial production to investors outside India shall not exceed cumulative amount of export earning of the
company during those years :
Provided that
(a) the restriction under this paragraph shall not apply
(i) in respect of shares held in such a company by International Finance Corporation (IFC), the Deustche
Entwicklungs Gescelschaft (DEG), the Commonwealth Development Corporation (CDC) and Asian Development
Bank (ADB),
(ii) to a company that has completed a period of seven years from the date of commencement of commercial
production,
(b) in case of an existing company that has issued fresh equity to persons resident outside India under these
Regulations, the restriction shall apply to the fresh shares from the date of their issue.
Rate of Dividend on Preference Shares.
7. The rate of dividend on preference shares or convertible preference shares issued under these Regulations shall
not exceed 300 basis points over the Prime Lending Rate of State Bank of India prevailing as on the date of the
Board meeting of the company in which issue of such shares is recommended.
Mode of payment for shares issued to persons resident outside India.
8. A company in India issuing shares or convertible debentures under this Schedule to a person resident outside India
shall receive the amount of consideration for such shares—
(i) by inward remittance through normal banking channels, or
(ii) by debit to NRE/FCNR account of the person concerned maintained with an authorised dealer/authorised bank.
Report by the Indian company.
9. (1) An Indian company issuing shares or convertible debentures in accordance with these Regulations shall submit
to Reserve Bank,
(A) not later than 30 days from the date of receipt of the amount of consideration, a report indicating :—
 (i) Name and address of the foreign investors
(ii) Date of receipt of funds and their rupee equivalent
(iii) Name and address of the authorised dealer through whom the funds have been received, and
(iv) Details of the Government approval, if any;
(B) not later than 30 days from the date of issue of shares, a report in Form FC-GPR together with,
(i) a certificate from the Company Secretary of the company accepting investment from persons resident outside
India certifying that
(a) all the requirements of the Companies Act, 1956 have been complied with;
(b) terms and conditions of the Government approval, if any, have been complied with;
(c) the company is eligible to issue shares under these Regulations; and
(d) the company has all original certificates issued by authorised dealers in India evidencing receipt of amount of
consideration in accordance with paragraph 9;
(ii) a certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of
the shares issued to the persons resident outside India.
Permission for retaining share subscription money received from persons resident outside India in a foreign currency
account.
10. Reserve Bank may, on an application made to it and on being satisfied that it is necessary so to do, permit an
Indian company issuing shares to persons resident outside India under this Schedule, to retain the subscription
amount in a foreign currency account, subject to such terms and conditions as it may stipulate.
Annexure A
(See paragraph 2)
List of activities or items for which automatic route of Reserve Bank for Investment from Persons Resident
Outside India is not available
1. Banking
2. NBFC's activities in Financial Services Sector
3. Civil Aviation
4. Petroleum including exploration/refinery/marketing
5. Housing & Real Estate Development sector for investment from persons other than NRIs/OCBs.
6. Venture Capital Fund & Venture Capital Company
7. Investing companies in Infrasturcture & Service Sector
8. Atomic Energy & related projects
9. Defence and strategic industries
10. Agriculture (including plantation)
11. Print Media
12. Broadcasting
13. Postal services
 Annexure B
( See paragraph 2)

Sectoral cap on Investments by Persons Resident Outside India

Sector Investment Description of Activity/Items/Conditions

Cap
1. Telecommunications 49% i) In basic, Cellular Mobile, paging and Value Added
Services, and Global Mobile Personal Communications
by Satellite subject to the licence from Department of
Telecommuni-cation of Government of India.
100% ii) In manufacturing activities

2. Housing and Real Estate 100% ONLY NRIs/OCBs are allowed to invest
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
centres 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 (e) above
g) Investment in housing finance institutions

3. Coal and Lignite 49% i) in Public Sector Undertakings (PSU) and

50% ii) in other than PSUs
a)Where Private Indian companies are setting up or
operating power projects as well as coal or lignite
mines for captive consumption;

b)For setting up coal processing plants provided the

company shall not do coal mining and shall not sell
washed coal or sized coal from its coal processing
plants in the open market and shall supply the
washed or sized coal to those parties who are
supplying raw coal to coal processing plants for
washing or sizing.
 c)For exploration or mining of coal or lignite for
captive consumption .

4. Drugs & Pharmaceuticals 74% For bulk drugs, their intermediaries and Formulations
(except those produced by The use of recombinant
DNA technology)

5. Hotel & Tourism 51% i) Hotels include restaurants, beach resorts, and other
tourist complexes providing accommodation and/or
catering and food facilities to tourists.
ii) Tourism related industry includes travel agencies, tour
operating 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
organisations.

6. Mining 74% Exploration and mining of diamonds and precious

stones
100% Exploration and mining of gold and silver and minerals
other than diamonds and precious stones, metallurgy
and processing

7. Advertising 74% Advertising sector

8. Films 100% Film industry (i.e. film financing, production,

distribution, exhibition, marketing and associated
activities relating to film industry) subject to the
following:

i) Companies with an established track record in films,

TV, music, finance and insurance
ii) The company should have a minimum paid up capital
of US $ 10 million if it is the single largest equity
shareholder and atleast US $ 5 million in other cases
iii) Minimum level of foreign equity investment would be
US $ 2.5 million for the single largest equity
shareholder and US$ 1 million in other cases
iv) Debt equity ratio of not more than 1:1 i.e., domestic
borrowings shall not exceed equity
v) Provisions of dividend balancing would apply.
9. Any other sector/ 100% -----
activity (other than those
 included in Annexure A)

Annexure C (Form GDR/ADR(Return))

Annexure D (Form GDR/ADR(Quarterly Return))
Annexure E
(See paragraph 6 of Schedule I)
List Of 22 Industries In Respect Of Which Dividend
Balancing Is Applicable
1. Manufacture of food and food products
2. Manufacture of dairy products
3. Grain mill products
4. Manufacture of bakery products
5. Manufacture and refining of sugar (vacuum pan sugar factories)
6. Production of common salt
7. Manufacture of Hydrogenated oil (Vanaspati)
8. Tea processing
9. Coffee
10. Manufacture of beverages, tobacco and tobacco products
11. Distilling, rectifying and blending of spirits, wine industries, malt liquors and malt, production of country
liquors and toddy
12. Soft drinks and carbonated water industry
13. Manufacture of cigar, cigarettes, cheroot and cigarette tobacco
14. Manufacture of wood and wood products, furniture and fixtures
15. Manufacture of leather and fur/leather products
16. Tanning, curing, finishing, embossing and japanning of leather
17. Manufacture of footwear (excluding repair) except vulcanised for moulded rubber or plastic footwear
18. Manufacture of footwear made primarily of vulcanised or moulded products
19. Prophylactics (rubber contraceptive)
20. Motor cars
21. Entertainment electronics(VCRs, Colour TVs, CD Players, Tape Recorders)
22. White goods(Domestic Refrigerators, Domestic Dishwashing Machines, Programmable Domestic Washing
Machines, Microwave Ovens, Airconditioners).
 SCHEDULE 2
{ See Regulation 5 (2) }
Purchase/sale of shares and/or convertible debentures of an Indian company by a registered Foreign
Institutional Investor under Portfolio Investment Scheme
1. Purchase/sale of shares and/or convertible debentures
(1) A registered Foreign Institutional Investor (FII) may, through the Securities and Exchange Board of India, apply
to the Reserve Bank for permission to purchase the shares and convertible debentures of an Indian company
under Portfolio Investment Scheme. The permission may be granted by Reserve Bank subject to such terms and
conditions as may be considered necessary.
(2) The registered FII permitted by the Reserve Bank under sub-paragraph 1, shall purchase the shares/convertible
debentures of an Indian company through registered brokers on recognised stock exchanges in India.
(3) The amount of consideration for purchase of shares / debentures shall be paid out of inward remittance from
abroad through normal banking channels or out of funds held in an account maintained with the designated
branch of an authorised dealer in India, in accordance with these Regulations.
(4) The total holding by each FII/SEBI approved sub-account of FII shall not exceed 10% (ten per cent) of the total
paid-up equity capital or 10% (ten per cent) of the paid-up value of each series of convertible debentures issued
by an Indian company and the total holdings of all FIIs/sub-accounts of FIIs put together shall not exceed 24
per cent of paid-up equity capital or paid up value of each series of convertible debentures.
Provided that the limit of 24 per cent referred to in this paragraph may be increased to 40 per cent 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.
Explanation:
For arriving at the ceiling on holdings of FIIs, shares/ convertible debentures acquired both through primary as
well as secondary market will be included. However, the ceiling will not include investment made by FII
through off-shore Funds, Global Depository receipts and Euro-Convertible Bonds.
(5) A registered FII may also be permitted to purchase shares/ convertible debentures of an Indian company
through private placement/ arrangement, subject to the ceilings specified in sub-paragraph (4) of this paragraph.
2. Maintenance of account by a registered FII for routing transactions of purchase and sale of shares /
convertible debentures
The Reserve Bank may, on application, permit a registered Foreign Institutional Investor to open a Foreign
Currency Account and/or a Non-resident Rupee Account with a designated branch of an authorised dealer for
routing the receipt of and payment for transactions relating to purchase and sale of shares / convertible
debentures under this Scheme, subject to the following conditions:-
i) The account shall be funded by inward remittance through normal banking channels or by credit of sale
proceeds (net of taxes) of the shares / convertible debentures sold on stock exchange.
ii) The funds in the account shall be utilised for purchase of shares / convertible debentures in accordance
with the provisions of paragraph 1 of this Scheme or for remittance outside India.
iii) The funds from Foreign Currency Account of the registered FII may be transferred to Non-Resident
Rupee account of the same FII and vice a versa.
3. Remittance of sale proceeds of shares / convertible debentures
The designated branch of an authorised dealer may allow remittance of net sale proceeds (after payment of
taxes) or credit the net amount of sale proceeds of shares / convertible debentures to the foreign currency
account or a Non-resident Rupee Account of the registered Foreign Institutional Investor concerned.
4. Investment by certain other investors
(1) Reserve Bank may, subject to such terms and conditions as it may consider necessary permit a domestic asset
 management company or portfolio manager who is registered with SEBI as a foreign institutional investor for
managing the funds of a sub-account, to make investment under the Scheme on behalf of:-
(i) a person resident outside India who is a citizen of a foreign state ,or
(ii) a body corporate registered outside India ,
Provided such investment is made out of funds raised or collected or brought from outside India through normal
banking channel,
(2) The application to Reserve Bank for permission under sub-paragraph (1) may be made through SEBI.
(3) Investments permitted to be made under sub-paragraph (1) shall not exceed 5% (five per cent) of the total paid-
up equity capital or 5% (five per cent) of the paid-up value of each series of convertible debentures issued by an
Indian company, and shall also not exceed the over-all ceiling specified in sub-paragraph (4) of paragraph 1 of
this Schedule.

SCHEDULE 3
[ See Regulation 5 (3) (i) ]
Purchase/sale of shares and/or convertible debentures by an NRI /OCB on a Stock Exchange In India on
repatriation and/or non-repatriation basis under Portfolio Investment Scheme
1. A Non-resident Indian (NRI) or an Overseas Corporate Body (OCB) may purchase/sell shares and/or
convertible debentures of an Indian company, through a registered broker on a recognised stock exchange,
subject to the following conditions :
i) the NRI/OCB designates a branch of an authorised dealer for routing his/its transactions relating to
purchase and sale of shares/ convertible debentures under this Scheme, and routes all such transactions
only through the branch so designated;
ii) the paid-up value of shares of an Indian company, purchased by each NRI or OCB both on repatriation
and on non-repatriation basis, does not exceed 5 percent of the paid-up value of shares issued by the
company concerned;
iii) the paid-up value of each series of convertible debentures purchased by each NRI or OCB both on
repatriation and non-repatriation basis does not exceed 5 percent of the paid-up value of each series of
convertible debentures issued by the company concerned;
iv) the aggregate paid-up value of shares of any company purchased by all NRIs and OCBs does not exceed
10 percent of the paid up capital of the company and in the case of purchase of convertible debentures the
aggregate paid-up value of each series of debentures purchased by all NRIs and OCBs does not exceed 10
percent of the paid-up value of each series of convertible debentures;
Provided that the aggregate ceiling of 10 per cent referred to in this clause may be raised to 24 per cent if
a special resolution to that effect is passed by the General Body of the Indian company concerned;
v) the NRI or OCB investor takes delivery of the shares purchased and gives delivery of shares sold;
vi) payment for purchase of shares and/or debentures is made by inward remittance in foreign exchange
through normal banking channels or out of funds held in NRE/FCNR account maintained in India if the
shares are purchased on repatriation basis and by inward remittance or out of funds held in
NRE/FCNR/NRO/NRNR/NRSR account of the NRI/OCB concerned maintained in India where the
shares/debentures are purchased on non-repatriation basis;
vi) the Overseas Corporate Body (OCB) informs the designated branch of the authorised dealer immediately
on the holding/interest of NRIs in the OCB becoming less than 60 per cent.
2. Report to Reserve Bank
 The link office of the designated branch of an authorised dealer referred to in paragraph 1, shall furnish to the
Chief General Manager, Reserve Bank of India (ECD), Central Office, Mumbai a report on daily basis giving
the following details -
a) Name of the Non resident Indian, or OCB.
b) Company-wise number of shares and/or debentures and paid-up value thereof , purchased and/or sold by
each NRI /OCB.
3. Remittance/credit of sale/maturity proceeds of shares and/or debentures
The net sale/maturity proceeds (after payment of taxes) of shares and/or debentures of an Indian company
purchased by NRI or OCB under this Scheme, may be allowed by the designated branch of an authorised dealer
referred to in paragraph 1,
a) to be credited to NRSR account of the NRI or OCB investor where the payment for purchase of shares
and/or debentures sold was made out of funds held in NRSR account, or
b) at the NRI or OCB investor’s option, to be credited to his/its NRO or NRSR account, where the shares
and/or debentures were purchased on non-repatriation basis, or
c) at the NRI or OCB investor’s option, to be remitted abroad or credited to his/its NRE/ FCNR/
NRO/NRSR account, where shares and/or debentures were purchased on repatriation basis.

SCHEDULE 4
{ See Regulation 5 (3) (ii) }
Purchase and sale of shares/ convertible debentures by a Non-resident Indian (NRI) or an Overseas Corporate
Body (OCB), on non-repatriation basis
1. 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.
2. Permission to purchase and/or sell shares/ convertible debentures of an Indian company
Subject to paragraph 1, a Non-resident Indian or an Overseas Corporate Body may, without any limit, purchase
on non-repatriation basis, shares or convertible debentures of an Indian company issued whether by public issue
or private placement or right issue.
3. Method of payment for purchase of shares/ convertible debentures
The amount of consideration for purchase of shares or convertible debentures of an Indian company on non-
repatriation basis, shall be paid by way of inward remittance through normal banking channels from abroad or
out of funds held in NRE/FCNR /NRO/NRSR/NRNR account maintained with an authorised dealer or as the
case may be with an authorised bank in India.
Provided that in the case of an NRI/OCB resident in Nepal and Bhutan, the amount of consideration for
purchase of shares or convertible debentures of an Indian company on non-repatriation basis, shall be paid only
by way of inward remittance in foreign exchange through normal banking channels.
4. Sale/ Maturity proceeds of shares or convertible debentures
i) The sale/maturity proceeds (net of applicable taxes) of shares or convertible debentures purchased under
this Scheme shall be credited only to NRSR account where the purchase consideration was paid out of
funds held in NRSR account and to NRO or NRSR account at the option of the seller where the purchase
 consideration was paid out of inward remittance or funds held in NRE/FCNR/NRO/NRNR account.
ii) The amount invested in shares or convertible debentures under this Scheme and the capital appreciation
thereon shall not be allowed to be repatriated abroad.

SCHEDULE 5
[ See Regulation 5 (4) ]
Purchase and sale of securities other than shares or convertible debentures of an Indian company by a person
resident outside India.
1. Permission to Foreign Institutional Investors for purchase of securities
A registered Foreign Institutional Investor may purchase, on repatriation basis, dated Government
securities/treasury bills, non-convertible debentures/bonds issued by an Indian company and units of domestic
mutual funds either directly from the issuer of such securities or through a registered stock broker on a
recognised stock exchange in India;
Provided that
i) the FII shall restrict allocation of its total investment between equity and debt instruments (including
dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30, and
ii) if the FII desires to invest upto 100 per cent in dated Government Securities including Treasury Bills,
non-convertible debentures/bonds issued by an Indian company, it shall form a 100% debt fund and get
such fund registered with SEBI.
2. Permission to Non-resident Indian and Overseas Corporate Body for purchase of securities
(1) A Non-resident Indian or an Overseas Corporate Body may, without limit, purchase on repatriation basis,
i) Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual
funds;
ii) bonds issued by a public sector undertaking(PSU) in India;
iii) shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase
is in accordance with the terms and conditions stipulated in the notice inviting bids.
(2) A Non-resident Indian or an Overseas Corporate Body may, without limit, purchase on non-repatriation
basis, dated Government securities (other than bearer securities), treasury bills, units of domestic mutual
funds, units of Money Market Mutual Funds in India, or National Plan/Savings Certificates.
3. Method of payment of purchase consideration
(1) A registered Foreign Institutional Investor who purchases securities under the provisions of this Schedule
shall make the payment for purchase of such securities either by inward remittance through normal
banking channels or out of funds held in Foreign Currency Account or Non-resident Rupee Account
maintained by the Foreign Institutional Investor with a designated branch of an authorised dealer with the
approval of Reserve Bank in terms of paragraph 2 of Schedule 2.
(2) A Non-resident Indian or an Overseas Corporate Body who purchases securities on repatriation basis,
under sub-paragraph (1) of paragraph 2 of this Schedule, shall make payment either by inward remittance
through normal banking channels or out of funds held in his/its NRE/FCNR account.
(3) A Non-resident Indian or an Overseas Corporate Body who purchases securities on non-repatriation basis,
under sub-paragraph (2) of paragraph 2 of this Schedule, shall make payment either by inward remittance
through normal banking channels or out of funds held in his/its NRE/FCNR/NRO/NRSR/NRNR account.
4. Permission for Sale of Securities
 A person resident outside India who has purchased securities in accordance with this Schedule may (a) sell such
securities through a registered stock broker on a recognised stock exchange or (b) tender units of mutual funds
to the issuer for repurchase or for payment of maturity proceeds or (c) tender Government securities/treasury
bills to the Reserve Bank for payment of maturity proceeds.
5. Remittance/credit of sale/maturity proceeds
(i) In the case of a registered Foreign Institutional Investor who has sold securities in accordance with paragraph 4,
the designated branch of an authorised dealer referred to in sub-paragraph (1) of paragraph 3 may allow
remittance of net sale/ maturity proceeds (after payment of taxes) or credit the net amount of sale/ maturity
proceeds of such securities to the foreign currency account or Non-resident Rupee Account of the FII investor
maintained in accordance with the provisions of paragraph 2 of Schedule 2.
(ii) In the case of a Non-resident Indian or an Overseas Corporate Body who has sold securities in accordance with
paragraph 4, the net sale/ maturity proceeds (after payment of taxes) of such securities, may be
a) credited only to NRSR account of the NRI investor where the payment for purchase of securities sold was
made out of funds held in NRSR account, or
b) credited, at the NRI or OCB investor’s option, to his/its NRO or NRSR account, where the payment for
the purchase of the securities sold was made out of funds held in NRO account, or
c) remitted abroad or at the NRI or OCB investor’s option, credited to his/its NRE/FCNR
/NRO/NRSR/NRNR account, where the securities were purchased on repatriation basis in accordance
with sub-paragraph (1) of paragraph 2 and the payment for purchase of the securities sold was made by
inward remittance through normal banking channels or out of funds held in NRE/FCNR account.

Schedule 6
[See Regulation 5(5)]
Investment in an Indian Venture Capital Undertaking by a
registered Foreign Venture Capital Investor
Investment by Foreign Venture Capital Investor.
1. (1) A registered Foreign Venture Capital Investor (FVCI) may, through the Securities and Exchange Board of
India, apply to the Reserve Bank for permission to invest in Indian Venture Capital Undertaking (IVCU) or in a VCF
or in a scheme floated by such VCFs. Permission may be granted by Reserve Bank subject to such terms and
conditions as may be considered necessary.
(2) The registered FVCI permitted by Reserve Bank under sub-paragraph (1), may purchase equity/equity linked
instruments/debt/debt instruments, debentures of a IVCU or of a VCF through Initial Public Offer or Private
Placement or in units of schemes/funds set up by a VCF.
(3) The amount of consideration for investment in VCFs/IVCUs shall be paid out of inward remittance from abroad
through normal banking channels or out of funds held in an account maintained with the designated branch of an
authorised dealer in India in accordance with Para 2.
Maintenance of account by the registered FVCI for investment in IVCUs/VCFs or schemes/funds set up by the
VCFs.
2. The Reserve Bank may, on application, permit a FVCI which has received ‘in principle’ registration from SEBI to
open a Foreign Currency Account and/or a Rupee Account with a designated branch of an authorised dealer with the
following permissible transactions :
(i) Crediting inward remittance received through normal banking channels or the sale proceeds (net of taxes) of
investments.
(ii) Making investment in accordance with the provisions of paragraph 1 above.
(iii) Transferring funds from the Foreign Currency Account of the FVCI to their own Rupee account.
 (iv) Remitting funds from the Foreign Currency or rupee account subject to payment of applicable taxes.
(v) Meeting local expenses of the FVCI.
Forward Cover.
3. Authorised Dealers may offer forward cover to FVCIs to the extent of total inward remittance. In case the FVCI
has made any remittance by liquidating some investments, original cost of the investments will be deducted from the
eligible cover.
Valuation of Investments.
4. The FVCI may acquire by purchase or otherwise or sell shares/convertible debentures/units or any other
investment held by it in the IVCUs or VCFs or schemes/funds set up by the VCFs at a price that is mutually
acceptable to the buyer and the seller/issuer. The FVCI may also receive the proceeds arising of the liquidation of
VCFs or schemes/funds set up by the VCFs.
Adherence to SEBI Guidelines
5. FVCIs shall abide by the relevant regulations/guidelines issued by Securities and Exchange Board.]
Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2000
FEMA 19/2000-RB, dated 3-5-2000 [GSR 456(E), dated 3-5-2000] - In exercise of the powers conferred by clause
(a) of sub-section (3) of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the
Reserve Bank of India makes the following regulations relating to transfer or issue of any foreign security by a
person resident in India, namely :—
Short title and commencement.
1. (i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of any Foreign
Security) Regulations, 2000.
(ii) They shall come into force on the 1st day of June, 2000.
Definitions.
2. In these Regulations, unless the context requires otherwise :
(a) “Act” means Foreign Exchange Management Act, 1999 (42 of 1999);
(b) “authorised dealer” means a person authorised as an authorised dealer under sub-section (1) of section 10 of the
Act;
(c) “American Depository Receipt (ADR)” means a security issued by a bank or a depository in United States of
America (USA) against underlying rupee shares of a company incorporated in India;
(d) “Core Activity” means activity carried on by an Indian entity which constitutes at least 50 per cent of its average
turnover in the previous accounting year;
(e) “Direct investment outside India” means investment by way of contribution to the capital or subscription to the
Memorandum of Association of a Foreign entity, but does not include portfolio investment or investment through
stock exchange or by private placement in that entity;
(f) “Financial commitment” means the amount of direct investment by way of contribution to equity and loan and 50
per cent of the amount of guarantees issued by an Indian party to or on behalf of its overseas Joint Venture Company
or Wholly Owned Subsidiary;
(g) “Foreign Currency Convertible Bond (FCCB)” means a bond issued by an Indian company expressed in foreign
currency, and the principal and interest in respect of which is payable in foreign currency;
(h) “Form” means the Form annexed to these Regulations;
(i) “Global Depository Receipt (GDR)” means a security issued by a bank or a depository outside India against
underlying rupee shares of a company incorporated in India;
(j) “Host country” means the country in which the foreign entity receiving the direct investment from an Indian
party is registered or incorporated;
(k) “Indian party” means a company incorporated in India or body created under an Act of Parliament, making
investment in a Joint Venture or Wholly Owned Subsidiary abroad, and includes any other entity in India as may be
notified by Reserve Bank :
Provided that when more than one such company incorporated or bodies under an Act of Parliament, makes a direct
investment in the foreign entity, all such companies or bodies together shall constitute the “Indian party”;
(l) “Investment banker” means an Investment banker registered with the Securities and Exchange Commission in
USA, or the Financial Services Authority in UK, or appropriate regulatory authority in Germany, France, Singapore
or Japan;
(m) “Joint Venture (JV)” means a foreign entity formed, registered or incorporated in accordance with the laws and
regulations of the host country in which the Indian party makes a direct investment;
(n) “Mutual Fund” means a Mutual Fund referred to in clause (23D) of section 10 of the Income-tax Act, 1961;
(o) “Net worth” means paid-up capital and free reserves;
(p) “Real estate business” means buying and selling of real estate or trading in transferable development rights
(TDRs) but does not include development of townships, construction of residential/commercial premises, roads or
bridges;
(q) “Wholly Owned Subsidiary (WOS)” means a foreign entity formed, registered or incorporated in accordance
with the laws and regulations of the host country, whose entire capital is held by the Indian party;
(r) Words and expressions used but not defined in these Regulations shall have the meanings respectively assigned
to them in the Act.
Prohibition on issue or transfer of foreign security.
3. Save as otherwise provided in the Act or rules or regulations made or directions issued thereunder, no person
resident in India shall issue or transfer any foreign security :
Provided that the Reserve Bank may, on application made to it, permit any person resident in India to issue or
transfer any foreign security.
Purchase and sale of foreign security by a person resident in India.
4. A person resident in India
(a) may purchase a foreign security out of funds held in Resident Foreign Currency (RFC) account maintained in
accordance with the Foreign Exchange Management (Foreign Currency Accounts) Regulations, 2000;
(b) may acquire bonus shares on the foreign securities held in accordance with the provisions of the Act or rules or
regulations made thereunder;
(c) when not permanently resident in India, may purchase a foreign security from out of his foreign currency
resources outside India;
(d) may sell the foreign security purchased or acquired under clause (a), (b) or (c).
Explanation - For the purpose of this clause, ‘not permanently resident’ means a person resident in India for
employment of a specified duration (irrespective of length thereof) or for a specific job or assignment, the duration
of which does not exceed three years.
Part I
Direct Investment outside India
Prohibition on Direct Investment outside India.
5. Save as otherwise provided in the Act, rules or regulations made or directions issued thereunder, or with prior
approval of Reserve Bank,
(1) no person resident in India shall make any direct investment outside India; and
(2) no Indian party shall make any direct investment in a foreign entity engaged in real estate business or banking
business.
Permission for Direct Investment in certain cases.
6. (1) Subject to the conditions specified in sub-regulation (2), 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 US $ 100 (one hundred) million or its equivalent in any one financial year, except investment in Nepal,
Bhutan and Pakistan :
Provided that in respect of commitment in Joint Ventures/Wholly Owned Subsidiaries in Myanmar and SAARC
countries (other than Nepal, Bhutan and Pakistan), the ceiling shall be increased by US $ 25 million or its equivalent
in any one financial year, in respect of such commitment :]
Provided further that the ceiling of US $ 50 million shall not apply to financial commitment by a unit located in a
Special Economic Zone 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.
(ii) In respect of direct investment in Nepal or Bhutan, in Indian rupees the total financial commitment shall not
exceed Indian Rupees 350 crores in any one financial year;]
(iii) The direct investment is made in a foreign entity engaged in the same core activity carried on by the Indian
party;
(iv) [* * *];
(v) The Indian Party is not on the Reserve Bank’s caution List or under investigation by the Enforcement
Directorate;
(vi) The Indian Party routes all transactions relating to the investment in a Joint Venture/Wholly Owned Subsidiary
through only one branch of an authorised dealer to be designated by it;
Explanation - The Indian Party may designate different branches of authorised dealers for different Joint
Ventures/Wholly Owned Subsidiaries outside India;
(vii) The Indian Party submits Form ODA, duly completed, to the designated branch of an authorised dealer for
onward transmission to Reserve Bank.
(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 the Foreign Exchange Management (Foreign Currency
Accounts) Regulations, 2000;
(ii) drawal of foreign exchange from an authorised dealer in India not exceeding 50% of the net worth of the Indian
Party as on the date of last audited balance sheet;
(iii) utilisation of the amount raised by issue of ADRs/GDRs by the Indian Party:
Provided that where the investment is entirely funded out of the source mentioned in clause (i), the conditions
specified in clauses (iii) and (iv) of sub-regulation (2) shall not apply.
(4) For the purpose of reckoning net worth of an Indian party, the net worth of its holding company (which holds at
least 51 per cent stake in the Indian Party) or its subsidiary company (in which the Indian Party holds at least 51 per
cent stake) may be taken into account provided such holding company or, as the case may be, subsidiary company,
has not availed of the facility of direct investment abroad during the relevant block of three years and has furnished
a letter of disclaimer in favour of the Indian Party.
(5) 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.
(6) 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) [* * *]
(c) the Indian Party files with Reserve Bank, in Form ODA full details of the investment made, within 30 days of
such investment.
(7)(a) For the purposes of investment under this Regulation by way of remittance from 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.
Investment in Financial Services Sector.
7. Subject to the Regulations in Part I, an Indian party engaged in the financial services activities, may make
investment in an entity outside India also engaged in financial services activities :
Provided that the Indian party—
(i) has earned net profit during the preceding three financial years from the financial services activities;
(ii) is registered with the appropriate regulatory authority in India for conducting the financial services activities;
(iii) has a minimum net worth of Rs. 15 crores as on the date of the last audited balance sheet; and
(iv) has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory
authority in India.
Investment in a foreign security by swap or exchange of shares of an Indian company.
8. (1) An Indian party may acquire shares of a foreign company, engaged in the same core activity, in exchange of
ADRs/GDRs issued to the latter 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 :
Provided that—
(a) the Indian Party has already made an ADR and/or GDR issue and that such ADRs/GDRs are currently Listed on
any stock exchange outside India;
(b) such investment by the Indian Party does not exceed the higher of the following amounts, namely:—
(i) amount equivalent of US $ 100 mn, or
(ii) amount equivalent to 10 times the export earnings of the Indian Party during the preceding financial year as
reflected in its audited balance sheet, inclusive of all investments made under Regulations in Part I, including under
(i) of this clause, in the same financial year,
(c) the ADR and/or GDR issue for the purpose of acquisition is backed by underlying fresh equity shares issued by
the Indian Party;
(d) the total holding in the Indian Party by persons resident outside India in the expanded capital base, after the new
ADR and/or GDR issue, does not exceed the sectoral cap prescribed under the relevant regulations for such
investment;
(e) the valuation of the shares of the foreign company is made,—
(A) as per the recommendations of the Investment Banker if the shares are not Listed on any stock exchange; or
(B) based on the current market capitalization of the foreign company arrived at on the basis of monthly average
price on any stock exchange abroad for the three months preceding the month in which the acquisition is committed
and over and above,the premium, if any, as recommended by the Investment Banker in its due diligence report in
other cases.]
(2) Within 30 days from the date of issue of ADRs and/or GDRs in exchange for acquisition of shares of the foreign
company under sub-regulation (1), the Indian Party shall submit a report in Form ODG to the Reserve Bank.
Approval of Reserve Bank in certain cases.
9. (1) An Indian Party which does not satisfy the eligibility norms under Regulation 6 or 7 or 8, may apply to the
Reserve Bank for approval.
(2) Application for direct investment in Joint Venture/Wholly Owned Subsidiary outside India, or by way of
exchange for shares of a foreign company, shall be made in Form ODI, or in Form ODB, respectively.
(2A) An application made under sub-regulation (2) in Form ODI
(a) for the purpose of investment by way of remittance from India, shall be accompanied by the valuation of shares
of the company outside India, made—
(i) where the investment is more than US $ 5 (Five) million, by a Category I Merchant Banker Registered with the
SEBI, or an Investment Banker/Merchant Banker 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 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, shall be accompanied by the
valuation carried out by a Category I Merchant Banker registered with the SEBI or an Investment Banker/Merchant
Banker registered with the appropriate regulatory authority in the host country.
(3) Reserve Bank may, inter alia, take into account following factors while considering the application made under
sub-regulation (2):
(a) prima facie viability of the Joint Venture/Wholly Owned Subsidiary outside India;
(b) contribution to external trade and other benefits which will accrue to India through such investment;
(c) financial position and business track record of the Indian Party and the foreign entity;
(d) expertise and experience of the Indian Party in the same or related line of activity of the Joint Venture or Wholly
Owned Subsidiary outside India.
Block allocation by Reserve Bank.
9A. (1) Reserve Bank may, on application made to it, approve, subject to such terms and conditions as considered
necessary, a block allocation of foreign exchange to an Indian Party which has exhausted the limit available to it
under sub-regulation (2) of Regulation 6.
(2) For considering the application made under sub-regulation (1), the Reserve Bank may take into account the
factors mentioned in sub-regulation (3) of Regulation 9.]
Unique Identification Number.
10. Reserve Bank will allot a Unique Identification Number for each Joint Venture or Wholly Owned Subsidiary
outside India and the Indian Party shall quote such number in all its communications and reports to the Reserve
Bank and the authorised dealer.
Method of Investment by capitalisation.
11. An Indian Party may also make direct investment outside India in accordance with the Regulations in Part I by
way of capitalisation in full or part of the amount due to the Indian Party from the foreign entity as follows:—
(i) payment for export of plant, machinery, equipment and other goods/software to the foreign entity;
(ii) fees, royalties, commissions or other entitlements of the Indian party due from the foreign entity for the supply
of technical know-how, consultancy, managerial or other services:
Provided that where the export proceeds have remained unrealised beyond a period of six months from the date of
export, such proceeds shall not be capitalised without the prior permission of Reserve Bank.
Export of Goods towards Equity.
12. (1) An Indian Party exporting goods/software/plant and machinery from India towards equity contribution in a
Joint Venture or Wholly Owned Subsidiary outside India shall declare it on GR/SDF/SOFTEX Form, as the case
may be, which shall be superscribed as “Exports against equity participation in the JV/WOS abroad”, and also
quoting Identification Number, if already allotted by Reserve Bank.
(2) Notwithstanding anything contained in Regulation 11 of the Foreign Exchange Management (Export of Goods
and Services) Regulations, 2000, the Indian Party shall, within 15 days of effecting the shipment of the goods,
submit to the Reserve Bank a custom certified copy of the invoice through the branch of an authorised dealer
designated by it.
(3) An Indian Party capitalising exports under Regulation (11) shall, within six months from the date of export, or
any further time as allowed by Reserve Bank, submit to Reserve Bank copy/ies of the share certificate/s or any
document issued by the Joint Venture or Wholly Owned Subsidiary outside India to the satisfaction of Reserve Bank
evidencing the investment from the Indian Party together with the duplicate of GR/SDF/SOFTEX Form through, the
branch of an authorised dealer designated by it.
Submission of Information to Reserve Bank.
13. (1) Where the Indian Party holds 50 per cent or more of the paid-up capital of the foreign entity and
(i) the foreign entity has been in operation for a period of less than two years; or
(ii) the Indian Party has not repatriated the amount of dividends, fees and royalties due to it from the foreign entity;
or
(iii) proceeds of exports to the foreign entity have not been realised in accordance with the Foreign Exchange
Management (Export of Goods and Services) Regulations, 2000; or
(iv) additional capital contribution will be required from India; or
(v) the percentage of equity shareholding of the Indian Party in the foreign entity is being reduced otherwise than in
pursuance of the laws of the host country,
the Indian Party shall not consent to the decision relating to the following subject matters, without prior approval of
the Reserve Bank—
(a) undertaking any activity other than the activity in which the foreign entity was engaged/or proposed to be
engaged at the time of investment by the Indian Party; or
(b) participation in the capital of another foreign entity; or
(c) alteration of the company’s capital structure, authorised or issued, or its shareholding pattern.
(2) The restriction contained in sub-regulation (1) shall not apply where the investment in the foreign entity is
entirely made out of balances held in Exchange Earners Foreign Currency account of the Indian Party and/or out of
foreign currency resources raised by the Indian Party through ADR/GDR issue.
Acquisition of a foreign company through bidding or tender procedure.
14. (1) On being approached by an Indian Party, which is eligible under the Regulations in Part I to make investment
outside India, an authorised dealer may allow remittance towards earnest money deposit or issue a bid bond
guarantee on its behalf for participation in bidding or tender procedure for acquisition of a company incorporated
outside India.
(2) On the Indian Party winning the bid,
(i) the authorised dealer may allow further remittances towards acquisition of the foreign company, subject to the
ceilings specified in Regulation 6; and
(ii) the Indian Party shall submit through the authorised dealer concerned a report to the Reserve Bank in Form ODA
within 30 days of effecting the final remittance.
(3) For participation in bidding or tender procedure for acquisition of a company incorporated outside India which
does not fall within the provisions of sub-regulation (1), the Reserve Bank may, on application in Form ODI, allow
remittance of foreign exchange towards earnest money deposit or permit the authorised dealer in India to issue a bid
bond guarantee, subject to such terms and conditions as Reserve Bank may stipulate.
(4) In case the Indian Party is successful in the bid but the terms and conditions of acquisition of a company outside
India, are,—
(a) not in conformity with the provisions of Regulations in Part I, or different from those for which approval under
sub-regulation (3) was obtained, the Indian Party shall submit application in Form ODI to Reserve Bank for
obtaining approval for the foreign direct investment in the manner specified in Regulation 9, or
(b) in conformity with the provisions of the Regulations in Part I or are same as those for which approval under sub-
regulation (3) was obtained, the Indian Party shall submit a report to the Reserve Bank, giving details of the
remittances made, within 30 days of effecting the final remittance.
Obligations of the Indian Party.
15. An Indian Party which has acquired foreign security in terms of the Regulations in Part I shall—
(i) receive share certificates or any other document as an evidence of investment in the foreign entity to the
satisfaction of the Reserve Bank within six months, or such further period as Reserve Bank may permit, from the
date of effecting remittance or the date on which the amount to be capitalised became due to the Indian Party or the
date on which the amount due was allowed to be capitalised;
(ii) repatriate to India, all dues receivable from the foreign entity, like dividend, royalty, technical fees, etc. within 60
days of its falling due, or such further period as the Reserve Bank may permit;
(iii) submit to the Reserve Bank every year within 60 days from the date of expiry of the statutory period as
prescribed by the respective laws of the host country for finalisation of the audited accounts of the Joint
Venture/Wholly Owned Subsidiary outside India or such further period as may be allowed by Reserve Bank, an
annual performance report in Form APR in respect of each Joint Venture or Wholly Owned Subsidiary outside India
set up or acquired by the Indian Party and other reports or documents as may be stipulated by the Reserve Bank.
Transfer by way of sale of shares of a JV/WOS.
16. Save as otherwise provided in the Act or rules or regulations made or directions issued thereunder or with the
permission of the Reserve Bank, no Indian Party shall transfer by way of sale to any person whether resident in
India or outside India, any share or security held by him in a Joint Venture or Wholly Owned Subsidiary outside
India :
Provided that a person resident in India, being an individual, holding qualification shares or right shares in a
company incorporated outside India acquired in terms of clauses (a) and (c) of Regulation 21 may sell such shares
without prior approval.
Pledge of Shares of Joint Ventures and Wholly Owned Subsidiaries.
17. An Indian Party may transfer, by way of pledge, shares held in a Joint Venture or Wholly Owned Subsidiary
outside India as a security for availing of fund based or non-fund based facilities for itself or for the Joint Venture or
Wholly Owned Subsidiary from an authorised dealer or a public financial institution in India.
Part Ia
investments abroad by a firm in india
Investments abroad by a firm in India.
17A. (1) A firm in India registered under the Indian Partnership Act, 1932, may apply to the Reserve Bank for
permission to invest abroad to the extent and in the manner specified in Part I.
(2) Reserve Bank may, after taking into account the factors specified in sub-regulation (3) of Regulation 9, grant
permission subject to such terms and conditions as are considered necessary.
Investments by partnership firm without prior approval of Reserve Bank.
17B. (1) A partnership firm registered under the Indian Partnership Act, 1932 which is engaged in providing
professional services specified in the Schedule, may make investment in foreign concerns engaged in similar
activity, by way of remittance from India and/or capitalization of fees/other entitlements due to it from such foreign
concerns :
Provided that:—
(a) such investments do not exceed US $ 1 (one) million or its equivalent in one financial year,
(b) the investing firm is a member of the respective All India professional organization/body; and
(c) a report containing (i) name, full address, registration and membership particulars of the investing firm, (ii) full
details of investment abroad, (iii) date and amount of remittance/amount of capitalization of fees/other entitlements
due to the investing firm, (iv) name and address of the foreign concern together with its line of activity, (v)
identification number, if already allotted by the Reserve Bank, is submitted to the Reserve Bank through the
authorised dealer within 30 days of making such investments.]
Investment by proprietary concern.
17C. A proprietary concern in India may apply to the Reserve Bank in Form ODB for general permission valid for a
period of one year to accept shares of a company outside India in lieu of fees due to it for professional services
rendered to the said company :
Provided that :—
(a) the value of the shares accepted from each company outside India shall not exceed fifty per cent of the fees
receivable by the Indian party from that company; and
(b) the Indian concern’s shareholding in any one company outside India by virtue of shares accepted as aforesaid
shall not exceed ten per cent of the paid-up capital of the company outside India, whose shares are accepted.]

Part II
Investments in Foreign Securities other than by
way of Direct Investment
Prohibition on issue of foreign security by a person resident in India.
18. (1) Save as otherwise provided in the Act or in sub-regulation (2), no person resident in India shall issue or
transfer a foreign security.
(2) A person resident in India, being an Indian Company or a Body Corporate created by an Act of Parliament,
(i) may issue FCCBs not exceeding US $50 million, to a person resident outside India in accordance with and
subject to the conditions stipulated in Schedule II;
(ii) where the issue exceeds US $50 million but does not exceed US $100 million, may apply to the Reserve Bank in
Form ECB for permission to issue FCCBs;
(iii) where the issue exceeds US $100 million, may apply to the Government of India, Ministry of Finance
(Department of Economic Affairs) for approval.
(3) The company/body corporate referred to in clause (iii) of sub-regulation (2) issuing the FCCBs shall, within 30
days from the date of issue, furnish a report to the Reserve Bank giving the details and documents as under :
(a) A copy of Government’s approval for issue of FCCBs.
(b) Total amount for which FCCBs have been issued.
(c) Names of the investors resident outside India and number of FCCBs issued to each of them.
(d) The amount repatriated to India through normal banking channels and/or the amount received by debit to
NRE/FCNR accounts in India of the investors (duly supported by bank certificate).
Permission for purchase/acquisition of foreign securities in certain cases.
19. (1) A person resident in India being an individual may acquire foreign securities :—
(i) by way of gift from a person resident outside India; or
(ii) issued by a company incorporated outside India under Cashless Employees Stock Option Scheme :
Provided it does not involve any remittance from India; or
(iii) by way of inheritance from a person whether resident in or outside India.
(2) A person resident in India, being an individual, who is an employee or a director of Indian Office or branch of a
foreign company or of a subsidiary in India of a foreign company or of an Indian company in which foreign equity
holding is not less than 51 per cent, may purchase the equity shares offered by the said foreign company :
Provided that —
(a) the shares are offered at a concessional price; and
(b) the consideration for purchase does not exceed US $20,000 or its equivalent, in any one calendar year.
(3) An authorised dealer may allow the remittance by the person eligible to purchase the shares in terms of sub-
regulation (2) :
Provided that the conditions specified in that sub-regulation are fulfilled.
Transfer of a foreign security by a person resident in India.
20. A person resident in India, who has acquired or holds foreign securities in accordance with the provisions of the
Act, rules or regulations made thereunder, may transfer them by way of pledge for obtaining fund based or non-fund
based facilities in India from an authorised dealer.
Prior Permission from Reserve Bank in certain cases.
21. (1) Reserve Bank, on an application, may permit a person resident in India to acquire foreign securities:—
(a) A person resident in India being an individual may acquire foreign securities as qualification shares issued by a
company incorporated outside India for holding the post of a director in the company :
Provided that,
(i) the number of shares so acquired shall be the minimum required to be held for holding the post of director and in
any case shall not exceed 1 per cent of the paid-up capital of the company, and
(ii) the consideration for acquisition of such shares does not exceed US $20,000 (Twenty Thousand only) in a
calendar year;
(b) A person resident in India being an individual, seeking to acquire qualification shares in a company outside
India beyond the limits laid down in the proviso to clause (a) shall apply to the Reserve Bank for prior approval;
(c) A person resident in India, being an individual, may acquire foreign securities by way of rights shares in a
company incorporated outside India :
Provided that the right shares are being issued by virtue of holding shares in accordance with the provisions of the
law for the time being in force;
(d) by way of purchase by the employees/directors of an Indian promoter company of shares of a Joint Venture or
Wholly Owned Subsidiary outside India of the Indian promoter company, in the field of software :
Provided that—
(i) the consideration for purchase does not exceed US $10,000 or its equivalent per employee in a block of five
calendar years,
(ii) the shares so acquired do not exceed 5 per cent of the paid-up capital of the Joint Venture or Wholly Owned
Subsidiary outside India, and
(iii) after allotment of such shares, the percentage of shares held by the Indian promoter company, together with
shares allotted to its employees is not less than the percentage of shares held by the Indian promoter company prior
to such allotment.
(2) Reserve Bank may, on an application made to it by the Indian software company allow its resident employees
(including working directors) to purchase foreign securities under the ADR/GDR linked stock option schemes :
Provided that the consideration for purchase does not exceed US $50,000 or its equivalent in a block of five
calendar years.
Investment by Mutual Funds.
22. Reserve Bank may, on application, permit a Mutual Fund, to purchase foreign securities subject to such terms
and conditions as it may stipulate.

Schedule I
(See Regulation 17B)
List of professional services provided by Registered partnership firms eligible
for investment abroad without prior approval of the Reserve Bank
1. Chartered Accountancy
2. Legal practice and related services
3. Information Technology and Entertainment Software related services
4. Medical and healthcare services]
Schedule II
[See Regulation 18(2)(i)]
Automatic route for issue of Foreign Currency Convertible Bonds (FCCBs)
(i) The FCCBs to be issued will have to conform to the Foreign Direct Investment Policy (including Sectoral Cap
and Sectors where FDI is permissible) of the Government of India as announced from time to time and the Reserve
Bank’s Regulations/directions issued from time to time.
(ii) The issue of FCCBs shall be subject to a ceiling of US $50 million in any one financial year.
(iii) Public issue of FCCBs shall be only through reputed lead managers in the international capital market. In case
of private placement, the placement shall be with banks, or with multilateral and bilateral financial institutions, or
foreign collaborators, or foreign equity holder having a minimum holding of 5 per cent of the paid up equity capital
of the issuing company. Private placement with unrecognised sources is prohibited.
(iv) The maturity of the FCCB shall not be less than 5 years. The call and put option, if any, shall not be exercisable
prior to 5 years.
(v) Issue of FCCBs with attached warrants is not permitted.
(vi) The “all in cost” will be 100 basis points less than those prescribed for External Commercial Borrowing (ECB)
schemes specified in the Schedule to Notification No. FEMA 3/2000-RB, dated 3rd May, 2000. The “all in cost”
shall include coupon rate, redemption premium, default payments, commitment fees, and fronting fees, if any, but
shall not include the issue related expenses such as legal fees, lead managers fees, out of pocket expenses.
(vii) The FCCB proceeds shall not be used for investment in Stock Market, and may be used for such purposes for
which ECB proceeds are permitted to be utilised under the ECB schemes.
(viii) In case the FCCBs are issued for financing imports/foreign exchange capital expenditure, the proceeds can be
retained abroad with the approval of the Reserve Bank of India. In all other cases, the proceeds shall be repatriated
to India immediately on completion of issue process.
(ix) The issue related expenses shall not exceed 4 per cent of issue size and in case of private placement shall not
exceed 2 per cent of the issue size.
(x) The issuing entity shall, within 30 days from the date of completion of the issue, furnish a report to the
concerned Regional Office of the Reserve Bank of India through a designated branch of an Authorized Dealer
giving the details and documents as under :
(a) the total amount of the FCCBs issued,
(b) names of the investors resident outside India and number of FCCBs issued to each of them, and
(c) the amount repatriated to India through normal banking channels and/or duly supported by bank certificates.