RBI on November 16, 2011, had
decided to treat the issue / transfer of ‘participating interest/ rights’ in
oil fields to a non- resident as Foreign Direct Investment (FDI) transaction
under the extant FDI policy and the FEMA regulations. Accordingly, these
transactions have to be reported as FDI transactions in terms of the provisions
of Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue
of Security by a Person Resident outside India) Regulations, 2000 notified vide
Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to
time read with A.P. (DIR Series) Circular No.63 dated April 22, 2009 as well as
paragraph 9 of Schedule I to the Foreign Exchange Management (Transfer of Issue
of Security by a Person Resident outside India) Regulations, 2000 notified vide
Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to
time. Accordingly, transfer of ‘participating interest/ rights’ will be
reported as ‘other’ category under Para 7 of revised Form FC-TRS as given in
the Annex and issuance of ‘participating interest/ rights’ will be reported as
‘other’ category of instruments under Para 4 of Form FC-GPR.
Friday, November 25, 2011
Infrastructure Debt Funds
In order to accelerate and
enhance the flow of long term funds to infrastructure projects for undertaking
the Government’s ambitious programme of infrastructure development, Union
Finance Minister in his budget speech for 2011-12 had announced setting up of
Infrastructure Debt Funds (IDFs). Accordingly, the Government has since come
out with the broad structure of the proposed IDFs vide their press release
dated June 24, 2011.
By virtue of Schedule 5 to the
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2000, a SEBI registered Foreign Institutional
Investor (FII) and a Non-Resident Indian (NRI) may invest in securities other
than shares or convertible debentures, subject to such terms and conditions
mentioned therein and limits as prescribed for the same by the Reserve Bank and
the Securities and Exchange Board of India (SEBI) from time to time.
AP (DIR Series) Circular No.8
dated August 9, 2011 and AP (DIR Series) Circular No.42 dated November 3, 2011 permits
Qualified Foreign Investors (QFIs as defined therein to mean non-resident
investors, other than SEBI registered FIIs and SEBI registered FVCIs, who meet
the KYC requirements of SEBI) are allowed to invest in units of domestic Mutual
Funds.
RBI vide a circular dated November
22, 2011 has permitted investment on repatriation basis by eligible
non-resident investors in (i) Rupee and Foreign currency denominated bonds
issued by the Infrastructure Debt Funds (IDFs) set up as an Indian company and
registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank of
India and in (ii) Rupee denominated units issued by IDFs set up as SEBI
registered domestic Mutual Funds(MFs), in accordance with the terms and
conditions stipulated by the SEBI and the Reserve Bank of India from time to
time.
However these investments would
be subject to certain terms and conditions as provided in the Circular.
Click
here to view the Circular.
Banks as sponsors to Infrastructure Debt Funds
IDFs can be set up either as Mutual Funds (MFs) or as
Non-Banking Finance Companies (NBFCs). While IDF-MFs will be regulated by SEBI
(SEBI has amended the Mutual Funds Regulations to provide regulatory framework
for IDF-MFs by inserting Chapter VI-B to the MF Regulations), IDF-NBFCs will be
regulated by Reserve Bank of India (RBI). The Reserve Bank had also issued a
press release on September 23, 2011 which contained the broad parameters for
banks and NBFCs to set up IDFs. Click
here to view the detailed regulations relating to IDF-NBFCs.
RBI has notified that scheduled commercial banks would be
allowed to act as sponsors to IDF-MFs and IDF-NBFCs with prior approval from
RBI subject to inter alia the following conditions:
·
Banks
may act as sponsors to IDF–MFs subject to adherence to SEBI regulations in this
regard.
·
A
bank acting as sponsor of IDF–NBFC shall contribute a minimum equity of 30 per
cent and maximum equity of 49 per cent of the IDF-NBFC.
·
Investment
by a bank in the equity of a single IDF – MF and NBFC should not exceed 10 per
cent of the bank’s paid up share capital and reserves.
·
Investment
in the equity of a bank in subsidiary companies, financial services companies,
financial institutions, stock and other exchanges put together should not
exceed 20 per cent of bank’s paid up share capital and reserves and this limit
will also cover bank’s investments in IDFs as sponsors.
·
Banks’
exposures to IDFs - (MFs and NBFCs) by way of contribution to paid up capital
as sponsors will form part of their capital market exposure and should be
within the regulatory limits specified in this regard.
·
Banks
should have clear Board laid down policies and limits for their overall
infrastructure exposure which should include their exposures as sponsors to
IDFs - (MFs and NBFCs).
·
The
IDFs - (MFs and NBFCs) should make a disclosure in the prospectus / offer
document at the time of inviting investments that the sponsoring bank's
liability is limited to the extent of its contribution to the paid up capital.
Click
here to view the notification.
Wednesday, November 16, 2011
Foreign Direct Investment – Reporting of issue / transfer of ‘participating interest/right’ in oil fields to a non resident as an Foreign Direct Investment transaction
Earlier the transfer
of equity shares / fully and mandatorily convertible debentures/ fully and
mandatorily convertible preference shares of an Indian company, from a person
resident outside India (non-resident) to a person resident in India or vice
versa, had to be reported to an Authorized Dealer bank within 60 days of
transactions. Further, the receipt of consideration for issue of shares as well
as the issue of shares of an Indian company, to a non-resident had to be
reported to the Reserve Bank of India through an Authorized Dealer bank within
30 days of the transaction (receipt of consideration for issue of shares to a
non resident or issue of shares to the non-resident) an accordance with the Regulations
9 and 10 and para 9 of Schedule I to the Foreign Exchange Management (Transfer
of Issue of Security by a Person Resident outside India) Regulations, 2000
(Click here to view) and Circular on Foreign Direct Investment in India -Transfer
of Shares / Preference Shares / Convertible Debentures by way of Sale -
Modified Reporting Mechanism (Click here to view)
The
Reserve Bank of India on 16th November 2011, vide a notification, has
decided that to treat the issue / transfer of ‘participating interest/ rights’
in oil fields to a non- resident as Foreign Direct Investment (FDI) transaction
under the extant FDI policy and the FEMA regulations. Accordingly, these
transactions have to be reported as FDI transactions in terms of the provisions
of Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue
of Security by a Person Resident outside India) Regulations, 2000 notified vide
Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to
time read with A.P. (DIR Series) Circular No.63 dated April 22, 2009 as well as
paragraph 9 of Schedule I to the Foreign Exchange Management (Transfer of Issue
of Security by a Person Resident outside India) Regulations, 2000 notified vide
Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to
time. Accordingly, transfer of ‘participating interest/ rights’ will be
reported as ‘other’ category under Para 7 of revised Form FC-TRS as given in
the Annex and issuance of ‘participating interest/ rights’ will be reported as
‘other’ category of instruments under Para 4 of Form FC-GPR.
Click here to view the notification.
Amendments to the Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010
The unprecedented growth in higher
education in recent years, of which the growth of higher professional
education, especially technical and medical education has been mainly through
private participation. The current national policy supported by several
judicial pronouncements is against commercialization of higher education,
though the policy encourages private “note for profit” participation with
surplus revenues to be ploughed back for growth and development of institutions
has led to the amendment to the Prohibition of Unfair Practices in Technical
Educational Institutions, Medical Educational Institutions and Universities
Bill, 2010.
The Union Cabinet on 16th
November 2011 has approved the official amendment to the Prohibition of Unfair
Practices in Technical Educational Institutions, Medical Educational
Institutions and Universities Bill, 2010 based on the recommendations of the
Parliamentary Standing Committee on HRD for consideration of the Parliament.
The press release issued in
relation to the amendment says that the Bill aims to provide an institutional
mechanism for preventing, prohibiting and punishing unfair practices in
technical and medical educational institutions and universities. The object is
to curtail the element of profiteering in some institutions which are presently
beyond the scope of any such regulation. The institutions are also expected to
mandatorily disclose information related to admission process by publication of
its prospectus. This is expected to bring about public accountability of such
institutions and act as a check on use of unfair practices being adopted
vis-a-vis students.
The provisions of mandatory
disclosure of information related to the admission process and holding the
institution accountable in respect of compliance with such information is an
innovation over the inspection based regulatory processes normally adopted. The
student or any other stakeholder can move the tribunal as well as the competent
criminal court of law in case the institutions attempts to adopt unfair
practices and the burden of proof would be upon the institution.
The students would stand to
benefit by enactment of a legislation to curb unfair practices in admission and
other areas of higher educational institutions, who are exposed to the
prevalence of distortions in the admission process leading to harassment and
extortion of students for admission.
Prompt and effective deterrent
action is constrained in the absence of any Central law prohibiting capitation
fee and other unfair practices. While the current policy in higher education is
to promote autonomy of institutions, adoption of unfair practices by misusing
autonomy would be detrimental for the credibility of the higher education
sector. It would be in public interest to balance autonomy of higher education
institutions with measures to protect the interests of students and others
accessing higher education.
Tuesday, November 8, 2011
Foreign Direct Investment – Transfer of Shares
According to Regulations 9 and 10
of the Foreign Exchange Management (Transfer of Issue of Security by a Person
Resident outside India) Regulations, 2000 (Click here
to view) prior approval of the Reserve Bank of India was required in case of transfer
of shares from a Resident to a Non Resident where:
1. the
transfer does not conform to the pricing guidelines as stipulated by the
Reserve Bank from time to time; or
2. the
transfer of shares requires the prior approval of the FIPB as per the extant
Foreign Direct Investment (FDI) policy; or
3. the
Indian company whose shares are being transferred is engaged in rendering any
financial service; or
4. the
transfer falls under the purview of the provisions of SEBI (SAST) Regulations,
require the prior approval of the Reserve Bank of India.
The transfer of shares from a Non
Resident to a Resident which does not conform to the pricing guidelines as
stipulated by the Reserve Bank of India from time to time also required the
prior approval of the Reserve Bank of India.
As a measure to further
liberalize and rationalize the procedures and policies governing FDI in India,
the RBI vide a circular dated November 4th 2011, has decided to
allow the following without the prior approval of the Reserve Bank of India :
Transfer of shares from a Non
Resident to Resident under the FDI scheme where the pricing guidelines under
FEMA, 1999 are not met provided that :-
(i) The
original and resultant investment are in line with the extant FDI policy and
FEMA regulations in terms of sectoral caps, conditionalities (such as minimum
capitalization, etc.), reporting requirements, documentation, etc.;
(ii) The
pricing for the transaction is compliant with the specific/explicit, extant and
relevant SEBI regulations / guidelines (such as IPO, Book building, block
deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy
back); and
(iii) Chartered
Accountants Certificate to the effect that compliance with the relevant SEBI
regulations / guidelines as indicated above is attached to the form FC-TRS to
be filed with the AD bank.
Transfer of shares from
Resident to Non Resident :
(i) where
the transfer of shares requires the prior approval of the FIPB as per the
extant FDI policy provided that :
o
the requisite approval of the FIPB has been
obtained; and
o the transfer of share adheres with the pricing
guidelines and documentation requirements as specified by the Reserve Bank of
India from time to time.
(ii) where
SEBI (SAST) guidelines are attracted subject to the adherence with the pricing
guidelines and documentation requirements as specified by Reserve Bank of India
from time to time.
(iii) where
the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999
are not met provided that:-
o
The resultant FDI is in compliance with the
extant FDI policy and FEMA regulations in terms of sectoral caps,
conditionalities (such as minimum capitalization, etc.), reporting
requirements, documentation etc.;
o
The pricing for the transaction is compliant
with the specific/explicit, extant and relevant SEBI regulations / guidelines
(such as IPO, Book building, block deals, delisting, exit, open offer/
substantial acquisition / SEBI SAST); and
o
Chartered Accountants Certificate to the effect
that compliance with the relevant SEBI regulations / guidelines as indicated
above is attached to the form FC-TRS to be filed with the AD bank.
(iv) where
the investee company is in the financial sector provided that :
o
NOCs are obtained from the respective financial
sector regulators/ regulators of the investee company as well as transferor and
transferee entities and such NOCs are filed along with the form FC-TRS with the
AD bank; and
o
The FDI policy and FEMA regulations in terms of
sectoral caps, conditionalities (such as minimum capitalization, etc.),
reporting requirements, documentation etc., are complied with.
Click
here to view the Circular.
Period for Payment of Cheques Reduced from 6 months to 3 Months
The Reserve Bank of India vide a
notification dated November 4th
2011, has decided to reduce the
period within which cheques/drafts/pay orders/banker’s cheques are presented
for payment from six months to three months from the date of such instrument.
RBI has stated that such a
decision is because some persons are taking undue advantage of the said
practice of banks of making payment of cheques/drafts/pay orders/banker’s
cheques presented within a period of six months from the date of the instrument
as these instruments are being circulated in the market like cash for six
months.
In exercise of the powers
conferred by Section 35A of the Banking Regulation Act, 1949, Reserve Bank has
directed all the Banks that with effect from April 1, 2012, banks should not
make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or
any subsequent date, if they are presented beyond the period of three months
from the date of such instrument.
Click
here to view the Notification.
Foreign investment in India by SEBI registered FIIs in other securities
Earlier in a Circular dated April 29th
2011,(Click here to view) the limit for
FII investment in non-convertible debentures / bonds issued by Indian companies
in the infrastructure sector was enhanced from USD 5 billion to USD 25 billion.
This was subject to the conditions that such instruments shall have a residual
maturity of five years and above, the investments would have a lock-in-period
of three years and ‘infrastructure’ would be as defined under the extant
External Commercial Borrowings (ECB) policy.
Later through another circular dated August 9th
2009, (Click here to view) it was decided that Qualified Foreign Investors as
defined therein (QFIs) were allowed to invest in units of Mutual Funds debt
schemes upto a limit of USD three billion within the overall limit of USD 25
billion for FII investment in non-convertible debentures / bonds issued by
Indian companies in the infrastructure sector.
RBI has vide a circular dated November 3rd
2011, had decided that:
1. FIIs
would also be allowed to invest in non-convertible debentures / bonds issued by
Non-Banking Financial Companies categorized as ‘Infrastructure Finance
Companies’(IFCs) by the Reserve Bank of India within the overall limit of USD
25 billion.
2. The
lock-in-period of three years for FII investment stands reduced to one year up
to an amount of USD 5 billion within the overall limit of USD 25 billion. This
lock-in-period shall be computed from the time of first purchase by FIIs.
3. The
residual maturity of five years and above stipulated would now onwards refer to
the original maturity of the instrument at the time of first purchase by an
FII.
4. The
above changes at (i) and (iii) above would also apply for QFI investment in
units of Mutual Fund debt schemes within the limit of USD three billion.
Click here to view the Circular
Wednesday, November 2, 2011
Amendment to the FDI Policy
The Department of Industrial
Policy and Promotion (DIPP) has on 31st October 2011, issued Corrigendum to the
Consolidated FDI Policy Circular (Circular 2 of 2011) deleting much discussed Para 3.3.2.1 from the semi-annual circular on
foreign direct investment policy. The DIPP had on September 30, 2011 come out
with the new FDI Policy effective from October 1, 2011.(Click here & here to know more)
This new Para 3.3.2.1 stated that instruments with
in-built option of any type would not qualify as an eligible instrument of FDI.
This particular clause had generated a huge debate creating lot of uncertainty
for exit of foreign investors and private equity players.
Para 3.3.2.1 stated as follows: “Only
equity shares, fully, compulsorily and mandatorily convertible debentures and
fully, compulsorily and mandatorily convertible preference shares, with no
in-built options of any type, would qualify as eligible instruments for FDI.
Equity instruments issued/transferred to non-residents having in-built options
or supported by options sold by third parties would lose their equity character
and such instruments would have to comply with the extant ECB guidelines.”
The PE investors had met
officials of DIPP last week and received a positive nod regarding the removal
of the clause. Indian Private Equity & Venture Capital Association (IVCA)
said it would continue to follow up the matter with the Department of Economic
Affairs (DEA), finance ministry and the RBI. “After all, the insertion has been
made primarily at the behest of the RBI,” said IVCA president Mahendra Swarup.
Following IVCA’s meeting, officials of DEA also agreed that while a decision on
this matter was under consideration, any insertion in the policy must only be
prospective and not made in retrospective effect applicable to already valid
transactions, according to PE investors who are involved in the discussion, as reported by Business Standard.
Click here to view Corrigendum to
Circular 2 of 2011 - Consolidated FDI Policy
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