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FEMA Updates - Govt. issues consolidated FDI policy |
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Written by P.T. GOVINDARAJAN
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Tuesday, 05 January 2010 12:54 |
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1) FDI Regulatory Framework
Draft consolidatiated FDI policy/ FDI framework for public comments - Ministry of Commerce and Industry (Department of Industrial Policy and Promotion), Government of India (GOI) has released its first draft consolidated FDI Policy / FDI framework vide Press Release dated December 24, 2009.
- The draft is open for comments from public and other stakeholders till January 31, 2010.
- The Press Note consolidates into one document, all prior regulations on FDI and reflects current "regulatory framework‟ on FDI. The press note is not intended to make changes in the extant regulations.
- The Press Note will have a sunset clause of 6 months and will automatically lapse on September 30, 2010. Thereafter a new Press Note on regulatory framework will be issued every 6 months which will incorporate and reflect all the changes in the regulations during the intervening period of 6 months.
- All earlier Press Notes on FDI issued by the department of Industrial policy and Promotion, GOI stand rescinded.This is a very welcome initiative on the part of the Ministry of Commerce and Industry and is certain to prove a one stop source of guidance on FDI policy like the RBI master circulars.
2) Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) (Amendment) Regulations, 2009 - Pledge of shares in connection with ECBs:
A new regulation (Regulation No. 12) has been inserted in the existing FEMA Notification No. FEMA 20/2000 RBI dated May 03, 2000. The regulation is as under - Pledge of shares of a company incorporated in India (i) Subject to a "no objection certificate‟ (NOC) from an authorized dealer bank, the promoter of an Indian company which has raised ECBs can secure the same by pledging the borrower company‟s shares or the shares of its associated resident companies.
(ii) Authorized dealer bank may grant NOC on satisfaction of the following – - underlying ECB is in compliance with extant ECB guidelines
- loan agreement is signed by both lender and borrower
- existence of security clause in loan agreement requiring the borrower to create charge on financial securities
- borrower has obtained loan registration number (LRN) from RBI
Additional conditions – - period of pledge is co-terminus with the maturity of the underlying ECB
- in case of invocation of pledge, transfer shall be in accordance with the FDI policy and RBI‟s directions
- certificate from statutory auditor has been obtained that the borrower will utilize/has utilized the ECBs for permitted end-use/s only.
The regulation has been made effective from 11 July 2008.
By implication, it now appears that any other kind of pledge of shares would require a specific approval of the Reserve Bank of India. Source: Notification NO. G.S.R. 851(E) [No. FEMA 202/2009-RB], dated 10-11-2009. |
