| March 06 | ||
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This E-Newsletter has been published by India Juris, full service Indian law firm with special expertise in Business, Corporate & IP laws, on requests from clients and associates worldwide with an object to keep them abreast of latest legal & business developments in India. | |
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Guarantees Presently,
only promoter corporates are permitted to offer guarantees on behalf of
their Wholly Owned Subsidiaries (WOSs) / Joint Ventures (JVs), under the
Automatic Route and issue of personal, collateral and third party
guarantees requires prior approval of Reserve Bank and is considered by
RBI, on a case by case basis. With
a view to simplify the procedure, it has now been decided to enlarge the
scope of guarantees covered under the Automatic Route. Accordingly, Indian
entities may offer any forms of guarantee - corporate or personal /
primary or collateral / guarantee by the promoter company / guarantee by
group company, sister concern or associate company in India, provided that
: a)
All 'financial commitments' including all forms of guarantees are within
the overall prescribed ceiling for overseas investment of the Indian party
i.e. currently within 200% of the net worth of the investing company
(Indian party). b)
No guarantee is 'open ended' i.e. the amount of the guarantee should be
specified upfront, and c)
As in the case of corporate guarantees, all guarantees are required to be
reported to RBI, in Form ODR. It
is clarified that Guarantees issued by banks in India in favour of
WOSs / JVs outside India, would be outside this ceiling and would be
subject to prudential norms issued by RBI from time to time. 3.
General Permission for disinvestment Currently,
in terms of Regulation 16, as amended from time to time, all
disinvestments that involve a 'write off' i.e. where the amount
repatriated on disinvestment is less than the amount of the original
investment, need prior approval of the Reserve Bank. In
order to enable companies to have operational flexibility according to
their commercial judgment, it has been decided to further liberalise the
Automatic Route of disinvestment. Accordingly, Indian parties may
disinvest without prior approval of the Reserve Bank, in the under-noted
categories. i)
in cases where the JV / WOS is listed in the overseas stock exchange. ii)
in cases where the Indian promoter company is listed on a stock exchange
in India and has a networth of not less than Rs.100 crore. iii)
where the Indian promoter is an unlisted company and the investment in
overseas venture does not exceed USD 10 million. The
Indian party is required to submit details of the disinvestment through
its designated Authorised Dealer bank within 30 days from the date
of disinvestment. 4.
Overseas Investments - Proprietorship concerns Only
a company incorporated in India, or a body created under an Act of
Parliament or a partnership firm registered under Indian Partnership Act,
1932, or any other entity as may be notified by the Reserve Bank is
eligible to invest in a JV/WOS abroad. With
a view to enabling recognised star exporters with a proven track record
and a consistently high export performance to reap the benefits of
globalization and liberalisation, it has been decided to allow proprietary
/ unregistered partnership firms to set up a JV/WOS outside India with
prior approval of Reserve Bank. Proprietary / unregistered partnership
firms satisfying the eligibility criteria as detailed in Annexure may
submit an application in form ODI to the Chief General Manager, Reserve
Bank of India, through their Authorised Dealer bank. Authorised Dealer
banks may accordingly, forward such investment proposals from the eligible
parties, with their comments / recommendations, to the Reserve Bank for
consideration. Approval of such investment would be subject to the usual
reporting mechanism. Criteria for considering investment proposals outside India by
established proprietorship or unregistered partnership exporter firms i)
The Partnership / Proprietorship firm is a DGFT recognised Star Export
House (export exceeding Rs.15 crore) per annum. ii)
The Authorised Dealer bank is satisfied that the exporter is KYC (Know
Your Customer) compliant, is engaged in the proposed business and has
turnover as indicated. iii)
Exporter has proven track record i.e. export outstanding does not exceed
10 per cent of the average export realisation of preceding three years. iv)
The exporter has not come under adverse notice of any Government agency
like Enforcement Directorate, CBI and does not appear in the exporters'
caution list of the Reserve Bank or in the list of defaulters to the
banking system in India.
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