On 22-08-2022, the Reserve Bank of India (‘RBI’) has issued the Foreign Exchange Management (Overseas Investment) Regulations, 2022 to facilitate business between Indian and foreign entities.
Key Points:
-
Indian entity can lend or invest in any debt instrument issued by the foreign entity or extend non- fund-based commitment after fulfilling the conditions-
-
Eligible to make Overseas Direct Investment (‘ODI’)
-
ODI should be in the foreign entity
-
The Indian entity has acquired control in foreign entity at the time of making commitments
-
-
While lending or investing in debt instruments, the Indian entity should check whether the loan is duly backed by a loan agreement or not and if the rate of interest is charged on an “arm’s length”.
Note: “Arm’s length” means a transaction between 2 related parties that is conducted as if they were unrelated to avoid any conflict of interest.
-
In the case of financial commitment by way of a guarantee, it can be issued to or on behalf of the foreign entity:
-
Corporate or performance guarantee by Indian entity
-
Corporate or performance guarantee by a group of Indian entity in India, being a holding company (holding 51% stake in Indian entity), or subsidiary company (51% held by Indian entity), or a promoter group company which should be a corporate body.
-
Personal guarantee by the resident individual promoter
-
Bank guarantee backed by a counter- guarantee or by collateral by the Indian entity and issued by a bank in India.
-
-
In case where a guarantee is extended jointly by 2 or more Indian entities, 100% of the amount has to be reckoned towards the individual limits of both the Indian entities.
-
In case there is a performance guarantee, 50% of the amount has to be reckoned towards the financial commitment limit.
-
In case of financial commitment by way of pledge, the Indian entity can pledge the equity capital of the foreign entity, held directly by the Indian entity in a foreign entity, in favour of Authorized Dealer (‘AD’) Bank or a public financial institution in India or an overseas lender, for availing fund based or non- fund-based facilities for itself or for any foreign entity in which it has made ODI.
-
In case of financial commitment by creating charge by way of mortgage, pledge, hypothecation on
-
The assets in India in favour of an AD bank or a public financial institution in India or an overseas lender as security for availing of the fund based or non-fund-based facility or both, for any foreign entity in which it has made ODI or for its step-down subsidiary outside India
-
The assets outside India of the foreign entity y in which it has made ODI or of its step-down subsidiary outside India in favour of an AD bank in India or a public financial institution in India as security for availing of the fund based or non-fund-based facility or both, for itself or any foreign entity in which it has made ODI or for its step-down subsidiary outside India or in favour of a debenture trustee registered with SEBI in India for availing fund-based facilities for itself
-
-
In case of acquisition or transfer by way of deferred payment, the payment of amount of consideration for the equity capital ca deferred for a definite period from the date of the agreement as is contained in the agreement in accordance with the conditions:
-
The foreign securities equivalent to the amount of total consideration should be transferred or issued, upfront by the seller to the buyer
-
The full and final consideration should be in compliance with the applicable pricing guidelines
-
-
The resident of India acquiring equity capital has to submit the share certificates to the AD bank within 6 months from the date of effecting remittance/ the date on which the dues to such person are capitalized/ the date on which the amount due was allowed to be capitalized.
-
An Indian resident having ODI in a foreign entity should realize and repatriate to India all the dues receivable from the foreign entity, within 90 days from the date when such receivables fall due/ the date of transfer or disinvestment/ the date of actual distribution of assets made by the official liquidator.
-
A person resident in India who has made ODI or making financial commitment or undertaking disinvestment in a foreign entity have to report the financial commitment, disinvestment within 30 days of receipt of such proceeds and restructuring within 30 days from the date of such restructuring.
-
In the case of Overseas Portfolio Investment or its transferring, a report of the same has to be made within 60 days from the end of the half- year in which such investment or transfer is made as of September or March end.
-
An Annual Performance Report needs to be submitted with respect to each foreign entity every year by 31st December.
-
In case of delay in reporting, Late submission fee has to be submitted. This facility can be availed within a maximum period of 3 years from the date of submission or filing.