The Reserve Bank of India on Thursday notified norms related to issue of equity/preference shares under the government route of the FDI scheme for two categories – import of capital goods and pre-operative/pre-incorporation expenses.
At present, an Indian company may, under the automatic route, issue equity shares/preference shares to a person residing outside India, being a provider of technology/technical know-how and against the royalty/lump sum fees due for payment. This is, however, subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.
According to the latest notification to investment bankers, the Indian central bank has added two new categories.
Import of capital goods/machinery/equipment (including second-hand machinery), subject to compliance with various conditions such as the import is in accordance with the export/import policy of the government, and an independent valuation of the capital goods being imported by a third party entity (preferably by an independent valuer from the country of import, along with production of copies of documents/certificates issued by the customs authorities towards assessment of the fair-value of such imports).
Such applications should also clearly indicate the beneficial ownership and identity of the importer company, as well as the overseas entity, and all such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of goods.
With regard to issue of shares against pre-operative/pre-incorporation expenses (including payments of rent, etc.), the RBI has included conditions such as submission of FIRC for remittance of funds by overseas promoters for the expenditure incurred, besides verification and certification of the pre-incorporation/pre-operative expenses by the statutory auditor.
It has also added that payments should be made directly by the foreign investor to the company (and not through third parties) and the capitalisation should be completed within the stipulated period of 180 days, permitted for retention of advance against equity under the extant FDI policy.
The central bank has also said that all requests for conversion should be accompanied by a special resolution of the company and the government’s approval will be subject to pricing guidelines of the Reserve Bank and appropriate tax clearance.
These directions have been issued with reference to the Consolidated FDI Policy dated March 31, 2011, issued by the Department of Industrial Policy & Promotion, which is part of the Ministry of Commerce & Industry.