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What are the statutory basis for foreign investment in India?

The foreign investment in India is governed by the provisions of Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulation, 2000. Reserve Bank of India has issued Notification No. FEMA.20/2000-RB dated 3rd May 2000 as amended from time to time.

What are the classes of Investors who come to India for the purpose of investment?

Generally following four categories of investors come to India for the purpose of Investments:

  • Non-Resident Indians/Persons of Indian Origin.
  • Foreign Companies Foreign Institutional Investors.
  • Foreign Venture Capital companies.

Whether any reporting system is to be observed after investments?

Yes : A two-stage reporting procedure has been introduced for this purpose. On receipt of money for investment: Within 30 days of receipt of money from the foreign investor, the Indian company will report to the Regional Office of RBI under whose jurisdiction its Registered Office is located, a report containing details such as: Name and address of the foreign investors Date of receipt of funds and their rupee equivalent Name and address of the authorised dealer through whom the funds have been received, and Details of the Government approval, if any; On issue of shares to foreign investor: Within 30 days from the date of issue of shares, a report in Form FC-GPR together with the following documents should be filed with the Regional Office of RBI: Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that All the requirements of the Companies Act, 1956 have been complied with; Terms and conditions of the Government approval, if any, have been complied with; The company is eligible to issue shares under these Regulations; and The company has all original certificates issued by authorised dealers in India evidencing receipt of amount of consideration; Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

What are the guidelines for transfer of existing shares from residents to non-residents or non-residents to residents?

Reserve Bank has given general permission to transfer the shares [Please refer details of the scheme in A.P.(DIR Series) Circular No.16 dated 4th October, 2004].

Can a foreign investor puts his money in an unlisted shares issued by a company in India?

As per the regulations/guidelines issued by RBI/Government of India, investment can be made in unlisted shares of Indian companies.

Can a foreigner set up a partnership/proprietorship concern in India?

No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concern in India. Even for NRIs/PIOs investment is allowed only on non-repatriation basis.

What is the procedure to be followed for obtaining Reserve Bank's approval for opening Liaison Office / Representative Office?

A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers.

The companies desirous of opening a liaison office in India may make an application in form FNC-l along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up. Liaison/representative offices have to file an Activity Certificate on annual basis from a Chartered Accountant to the-concerned Regional Office of the RBI, stating that the Liaison Office has undertaken only those activities permitted by RBI.

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