Foreign Equity Investment

RESERVE BANK OF INDIA
PRESS RELEASE

PRESS RELATIONS DIVISION, CENTRAL OFFICE, POST BOX 406, BOMBAY 400023 GRAM RESERVE BANK*PHONE 2860502

100% Foreign Investment in Privately Owned
Power Sector

Government of India in their Gazette Notification No.237 dated 22nd October 1991 have notified that foreign investment to the extent of 100% will be permitted in the power sector in privately owned enterprises. It has since been clarified by the Ministry of Finance that the condition of dividend balancing by export earnings which is normally being applied to cases of foreign investment up to 51% equity will not be applicable to such foreign investments in the power sector.

Press Release: 1991-92/266

Rakesh Kacker
Joint Secretary (IPC)
Tele. No.3714842

New Delhi,
June 23, 1998

D.O.No.AD-3/96-IPC.III

Dear Shri

I am enclosing herewith a copy each of the following notifications/press releases recently issued by the Reserve Bank of India and Department of Industrial Policy & Promotion, Government of India regarding foreign equity participation inter-alia, in the power sector:

i) RBI Notifications No.F.E.R.A.180/98-RB dated 13th January, 1998 regarding permission for issue of equity shares to foreign investors under Automatic Route of Reserve Bank;

ii) RBI D.O. letter No.EC.CO.FITT/2111/12.01.00/97-98 dated 27th February, 1998 regarding Indian Companies seeking Foreign Direct Investment - Further simplification of procedure by RBI along with RBI Notification No.F.E.R.A.182/98/RB dated 10th February, 1998, Press releases dated February 4, 1998 and February 13, 1998; and

iii) Press Note No.2 (1998 Series) dated 13th June, 1998 of Ministry of Industry , Department of Industrial Policy and Promotion (Industrial Policy Division) regarding automatic approval for FDI.

2. It is expected that the above measurers will further streamline the procedure of bringing in foreign equity for various projects relating to power sector.

Yours sincerely,

Sd/-
(Rakesh Kacker)

To 1. Energy/Power Secretary of all the States/UTs
2. Chairman of all the SEBs

Copy to:-

1. The Chairman, CEA
2. All Joint Secretaries in the Ministry of Power
3. Directors/Deputy Secretary/Managers/D.Os./S.O. in I.P. Cell.
4. P.S. to M.O.P./P.S. to Secretary (P)/P.A. to AS(P)

Press Releases

Notification No. F.E.R.A. 180/98-RB dated 13th January 1998

Permission for issue of equity shares to foreign investors
under Automatic Route of Reserve Bank

In pursuance of clause (a) and clause (d) of sub-Section (1) of Section 19 read with clause (b) of sub-Section (1) of Section 29 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), the Reserve Bank is pleased to permit a company incorporated in India -

a. Which engaged or proposing to engage in an activity specified in the list for the time being in force published by the Ministry of Industry, Government of India, as Annexure III to the Statement on the Industrial Policy, 1991 (hereinafter referred to as the said Annexure III@) ; or

b. Which is a Trading Company primarily engaged in export, and is registered as an Export / Trading / Star Trading House, with the Ministry of Commerce, Government of India,

to issue equity shares subject to the conditions mentioned in para 3, to a person who is not a citizen of India (whether resident in India or not) or to a company (other than a banking company) which is not incorporated under any law in force in India, and to send such shares out of India, to their place of residence or incorporation as the case may be; Provided that a company, existing on the date of this Notification, which is not engaged in the said Annexure III activities shall be eligible to issue shares, if it embarks upon expansion programme predominantly in the said Annexure III activities, subject to the condition that the foreign equity raised by issue of equity shares to foreign investor is utilised for such expansion ;

Provided further that in the case of a newly set-up Trading Company primarily engaged in export, issue of shares shall be subject to the condition that registration as an Export / Trading / Star Trading House is obtained before remittance of dividend to the foreign investor.

2. The general permission granted herein shall not apply to or in respect of ;

a. person who is a citizen of, or a company incorporated in, Pakistan or Bangladesh:

b. a company being -

i. manufacturer of items reserved for small scale sector ;

ii. unit manufacturing items which require industrial licence ;

iii. unit manufacturing any item of aerospace and defence equipments whether specifically mentioned or not ; and

iv. unit manufacturing any item related to production or use of atomic energy including carrying out of any process, preparatory or ancillary to such production or use, under the Atomic Energy Act, 1962 ;

v. 100% Export oriented unit and unit in Export processing zones.

3. The general permission granted herein to issue shares (hereinafter referred to as >foreign investment=) is subject to the following conditions, namely :

i. the foreign investment shall not in aggregate exceed 50%, 51% or 74% of the equity capital of the issuer company, as indicated in the said Annexure III;

ii. Where the issuer company is a Trading Company, foreign investment therein shall not exceed 51% of its equity capital ;

iii. In the case of issue of shares by an existing Company,

a. Board Resolution has been passed in connection with preferential allotment of shares, if any, to foreign investor, indicating the issue price;

b. Special Resolution has been passed under Section 81 (1A) of the Companies Act, 1956, wherever applicable, in connection with such preferential allotment, indicating the issue price ;

c. In the case of a listed company, the price for the issue is worked out according to SEBI guidelines and is duly certified by the Company=s statutory auditors ; and in the case of any other company, calculation of fair value of shares (as per erstwhile CCI guidelines) is made by an independent Chartered Accountant ;

iv. approval, wherever necessary, from any authority, statutory or otherwise, required for the project, is obtained by the company ;

v. payment for the shares to be issued to the foreign investor has been received by remittance from abroad through normal banking channels ;

vi. Remittance of dividend in respect of industries specified in the Annexure hereto, shall be subject to the condition of balancing of dividend over a period of seven years to be reckoned in the case of an existing company, from the date of issue of shares, and in any other cases, from the date of commencement of production ;

vii. No disinvestment of shares by the foreign investor shall be made without the previous permission of the Reserve Bank ;

viii. the issuer company files with the Regional Office of Reserve Bank, not later than thirty days from the date of issue, the following -

a. One copy of Form FC (RBI) duly completed containing NIC code and description of activity in accordance with the said Annexure III;

b. original Foreign Inward Remittance Certificate (FIRC) evidencing receipt of funds ;

c. Memorandum and Articles of Association of the issuer company ;

d. original certificate by a Chartered Accountant, containing particulars of shares issued, date of issue, number of shares, and the issue price ;

e. Certified copy each of Board Resolution, Special Resolution, Statutory Auditor=s Certificate, or the Chartered Accountant=s calculation, referred to in para 3 (iii) above ;

f. such other particulars and documents as may be required or specified by the Reserve Bank from time to time.

(C. Harikumar)
Executive Director

ANNEXURE

(See para 3 (vi) of the Notification)

LIST OF 22 SPECIFIED INDUSTRIES IN THE CONSUMER GOODS SECTOR IN 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 vulcanized for moulded rubber or plastic footwear

18. Manufacture of footwear made primarily of vulcanized 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, Air conditioners).

Note :- Remittance of dividend should be covered by earnings of the company from export of items covered by the foreign collaboration agreement. Remittance of dividend can also be covered from earnings through export of items not mentioned in the agreement provided these are in the list of industries mentioned in the said Annexure III. The amount of dividend payment may be covered by export earnings of such items recorded in years prior to the payment of dividend or in the year of payment of dividend.

Reserve Bank of India

Press Release

February 4, 1998

Indian companies seeking Foreign Direct Investments -
Further simplication of procedures by RBI

In a major drive to simplify procedures for foreign direct investment in India under a automatic route@, the Reserve Bank of India had last month dispensed with the need for its prior approval for such proposals. Indian companies / entrepreneurs have been general permission for this purpose vide Notification No. FERA . 180/98 - RB dated January 13, 1998. In terms of the foreign direct investment policy of the Government of India, proposals which do not satisfy the parameters prescribed for automatic approval by the Reserve Bank, require specific clearance from the Government of India (Secretariat for Industrial Approvals (SIA) / Foreign Investment Promotion Board (FIPB) as the case may be). According to the present procedure in vogue, on receipt of the FIPB approval the concerned Indian companies approach the Regional Office (RO) of the Reserve Bank for >in-principle= approval for receiving remittances from abroad subject to the conditions prescribed by the FIPB. After the >in-principle= approval Indian companies can receive funds from abroad but they have to again approach the concerned Regional Office of the Reserve Bank with documentary evidence of foreign inward remittance for a final approval under Sections 19 (1) and 29 (1) of FERA to issue shares to the foreign collaborator. In order to simplify the procedure in respect of cases already approved by the Government of India, the Reserve Bank has now decided to grant general permission under FERA in respect of all such proposals. It will no longer be necessary for the Indian companies to approach the Regional Offices of the Reserve Bank for A in - principle@ permission before receiving overseas investment or at a last stage for issuing shares to the foreign investor. Necessary notification under FERA to give effect to the revised simplified procedure is under issue. Once the revised procedure comes into effect after the issue of the notification under FERA, Indian companies getting foreign investment approval from SIA / FIPB will not require any further clearance from the Reserve Bank for the purposes of receiving inward remittance and issue of shares to the foreign investors. These companies will, however have to file the required documents with the concerned Regional Offices of the Reserve Bank within 30 days after issue of shares to the foreign investors. It is also being provided that, before receiving the overseas investment in accordance with the FIPB approval, the board of the Indian company will pass a resolution taking note of the conditions stipulated by the FIPB and confirming that pre-requisites, if any, laid down by the FIPB have been complied with. With the above simplification in procedures, in future, proposals from Indian companies which conform to the foreign direct investment policy as laid down by the Government of India will no longer require case-by-case approval from the Reserve Bank. Cases pending with Reserve Bank of India will be dealt with expeditiously as per the procedure prevailing before the date of new notification.

Alpana Killawala
General Manager

Press Release : 1997 - 98/691

RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI - 400 001.

Notification No. F.E.R.A. 182/98 RB Dated 10th February 1998

Permission for issue of security in respect of foreign investment approved under SIA/FIPB route

In pursuance of clause (a) and clause (d) of Sub - Section (1) of Section 19 read with clause (b) of Sub - Section (1) of Section 29 of the foreign exchange Regulation Act, 1973 (46 of 1973), the Reserve Bank is pleased to permit a company incorporated in India, which holds a valid SIA / FIPB approval for foreign investment in India, to issue security subject to the conditions mentioned in para 2, to a person who is not a citizen of India (whether resident in India or not) or to a company (other than a banking company) which is not incorporated under any law in force in India; and to send such security out of India, to their place of residence or incorporation, as the case may be ;

Provided that no security shall be issued to a person who is a citizen of, or to a company incorporated in, Pakistan or Bangladesh.

Expl : ASIA / FIPB approval@ means the approval granted for foreign investment by the Government of India, Ministry of Industry, Department of Industrial Policy & Promotion, Secretariat for Industrial Assistance, or by the Foreign Investment Promotion Board.

2. The general permission granted herein to issue security (hereinafter referred to as a foreign investment@) is subject to the following conditions, namely :

(i) conditions stipulated in the SIA / FIPB approval are duly complied with ;

(ii) the Board of the issuer company has satisfied itself about compliance with all pre-requisites including those stipulated in SIA / FIPB approval, for issue of securities and receipt of remittance from abroad and has recorded its satisfaction by passing a resolution to that effect ;

(iii) in the case of issue of security by an existing Company,

(a) Board Resolution has been passed in connection with preferential allotment of security, if any, to foreign investor, indicating the issue price ;

(b) Special Resolution has been passed under Section 81(1) of the Companies Act, 1956, wherever applicable, in connection with such preferential allotment, indicating the issue price ;

(c) in the case of a listed company, the price for the issue is worked out according to SEBT guidelines and is duly certified by the Company=s statutory auditors ; and in the case of any other company, calculation of fair value of security (as per erstwhile CCT guidelines) is made by an independent Chartered Accountant ;

(iv) approval, whenever necessary, from any authority, statutory or otherwise, required for the project, is obtained by the company ;

(v) payment for the security to be issued to the foreign investor has been received by remittance from abroad through normal banking channels ;

(vi) the issuer company files with the Regional Office of Reserve Bank, not later than thirty days from the date of issue, the following -

a) one copy of Form ISD duly completed ;

b) certified copy of SIA / FIPB approval ;

c) original Foreign Inward Remittance Certificate (FIRC) evidencing receipt of funds ;

d) Memorandum and Articles of Association of the issuer Company ;

e) original certificate by a Chartered Accountant, containing particulars of security issued, date of issue, number of security and the issue price ;

f) certified copy each of the Board Resolution, Special, Resolution, Statutory Auditor=s Certificate, or the Chartered Accountant=s calculation, referred to in items (ii) and (iii) above ;

g) such other particulars and documents as may be required or specified by the Reserve Bank from time to time.

(C. Harikumar)
EXECUTIVE DIRECTOR

Reserve Bank of India
Press Release

February 13, 1998

RBI operationalises general permission to Indian companies
seeking FDIs in respect of SIA / FIPB approvals

The Reserve Bank has issued a notification on February 10, 1998 operationalising the procedure for granting general permission to Indian companies to issue equity shares / securities to foreign investors in accordance with the approval for foreign direct investments (FDIs) granted by the Secretariat for Industrial Assistance (SIA) (Government of India, Ministry of Industry, Department of Industrial Policy & Promotion) or by the Foreign Investment Promotion Board (FIPB).

The notification (No. FERA 182/98 RB dated February 10, 1998) has been issued under Sections 19 (1) and 29 (1) of the Foreign Exchange Regulation Act (FERA), 1973. The general permission for issue of equity shares/ securities to foreign investors is granted subject to observance of certain terms and conditions.

It may be recalled that the Reserve Bank of India, on February 4, announced that in order to simplify the procedures for foreign direct investments in India already approved by the Government of India, it has granted general permission under FERA to all such proposals. With the issuance of the notification, it is now no longer necessary for the Indian companies to approach the regional offices of the Reserve Bank for Ain-principle: permission before receiving inward remittance or at the stage of issuing shares to the foreign investors. The companies are, however, required to file the required documents with the concerned regional offices of the Reserve Bank within 30 days after issue of shares.

The RBI notification dated February 10, 1998 is available on the

RBI website on the Internet also (http://www.rbi.org.in).

(Alpana Killawala)
General Manager

Press Release: 1997-98/728

GENERAL MANAGER
RESERVE BANK OF INDIA

D.O.EC.CO.FITT/2111/12.01.00/97-98
27th February 1998
EXCHANGE CONTROL DEPARTMENT,
CENTRAL OFFICE,
CENTRAL OFFICE BUILDING,
POST BOX NO. 1055. FORT,
BOMBAY - 400 023.

Dear Shri Mishra,

Indian Companies seeking Foreign Direct Investments -Further simplification of procedures by RBI - Notification under FERA, 1973

You may be aware that RBI have recently simplified the procedures for foreign direct investment under the automatic route of RBI (c.f. our D.O. letter EC.CO.FITT/1820/12.01.00/97-98 dated 16th January 1998). To continue this trend of liberalization, RBI vide Notification No. FERA.182/98 RB dated 10th February 1998, granted general permission under FERA to the Indian Companies, holding SIA / FIPB approval for foreign investment thereby dispensing with the existing practice of obtaining in principal and later final approval under FERA, from our Regional Offices. In this connection, we forward herewith copies of our Press Release dated 4th February 1998 and 13th February 1998 for your information.

2. We now forward herewith 2 copies of the said Notification No. FERA 182 / 98 RB dated 10th February 1998 (both in English and Hindi) for publishing the same in the Gazette.

3. We shall be glad to receive 2 copies of the Gazette, containing the publication of the said Notification.

Yours sincerely,
Sd/-
(P.K. Mishra)

Shri Anoop Mishra,
Director (FI), Government of India,
Ministry of Finance, Deptt. of Economic Affairs,
New Delhi.

Encl : As above

Copy together with copies of two Press Release and Notification dated 13th February 1998 referred to, forwarded to Shri Dhiraj Mathur, Director, Government of India, Ministry of Industry, Deptt. of Industrial Policy & Promotion, Udyog Bhawan, New Delhi - 110011.

Government of India
Ministry of Industry

Department of Industrial Policy and Promotion
(Industrial Policy Division)
******

Udyog Bhavan, New Delhi
dated the 13th June, 1998

Press Note No. 2
(1998 Series)

Under the present policy, Indian companies undertaking generation and transmission of electric energy, produced in hydro-electric power plants, coal based power plants, oil based thermal power plants and gas based thermal power plants are eligible for automatic approval up to 74% foreign equity.

2. The Government has reviewed the existing guidelines for automatic approval for foreign equity for electric generation, transmission and distribution projects, and has decided to enlarge the provisions for automatic approval for such projects. Accordingly, projects for electric generation, transmission and distribution will be permitted foreign equity participation up to 100% on the automatic approval route provided the foreign equity in any such project does not exceed Rs. 1500 crore. The categories which would qualify for such automatic approval are :

(i) Hydro - electric power plants

(ii) Coal/lignite based thermal power plants

(iii) Oil based thermal power plants

(iv) Gas based thermal power plants

3. It is clarified that the facility for automatic approval as enumerated in paragraph 2 above, does not include generation, transmission and distribution of electric energy produced in atomic reactor power plants and hence such proposals shall not qualify for automatic approval by RBI under this Press Note.

4. The provisions referred in para 2 above would be listed under the heading Part - AD@ of Annexure - III as appended to this Press Note as a substitution of the existing entry No. C-4 in Part - AC@ of Annexure-III.

5. The list appended to this Press Note is based on the National Industrial Classification of all Economic Activities (NICE), 1987. The entrepreneurs / investors are advised to give the description of their activity under this classification system when submitting their applications to the RBI.

6. All other terms and conditions as notified under Press Note No. 2 (1997 series) dated the 17th January, 1997 and Press Note No. 14 (1997 series) dated the 8th October, 1997 remain unchanged.

(Ashok Kumar)
Joint Secretary to the Government of India

F. No. 10 (31)/97-IP New Delhi, dated the 13th June, 1998.

Forwarded to the Press Information Bureau to give wide publicity to the contents of the above Press Note.
Press Information Officer,
Press Information Bureau,
New Delhi.

ANNEXURE - III

(Contd ........)

PART >D=
LIST OF INDUSTRIES / ITEMS FOR AUTOMATIC APPROVAL
FOR FOREIGN EQUITY UP TO 100%

Sl. No.	NICE Code			Description
Sl. No.	Div.	Group	Class	Description
D-1	40			ELECTRICITY GENERATION, TRANSMISSION AND DISTRIBUTION
		400		Generation and transmission of electric energy (only for hydro-electric power plants, coal / lignite based thermal power plants, oil based thermal power plants, and gas based thermal power plants, and not for atomic - reactor power plants)
			400.1	Generation and transmission of electric energy produced in hydro-electric power plants.
			400.2	Generation and transmission of electric energy produced in coal / lignite based thermal power plants.
			400.3	Generation and transmission of electric energy produced in oil based thermal power plants.
			400.4	Generation and transmission of electric energy produced in gas-based thermal power plants.
		401		Distribution of electric energy to households, industrial, commercial and other users.

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ANNEXURE

Reserve Bank of India

RESERVE BANK OF INDIAEXCHANGE CONTROL DEPARTMENTCENTRAL OFFICEMUMBAI - 400 001.

Reserve Bank of IndiaPress Release

GENERAL MANAGERRESERVE BANK OF INDIA

Press Note No. 2(1998 Series)

ANNEXURE - III

RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI - 400 001.

Reserve Bank of India
Press Release

GENERAL MANAGER
RESERVE BANK OF INDIA

Press Note No. 2
(1998 Series)