RBI reviews ODI provisions by a proprietorship concern/ unregistered partnership firm in India
Niddhi Parmar
Vinod Kothari & Company
Corporate Law Services Group
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pertinent question. It is not intended to be a professional advice and should
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Subsequent to amending the FEMA (Transfer or Issue of
any Foreign Security) (Amendment) Regulations, 2004 (ODI guidelines) with
respect to Overseas Direct Investments by proprietorship concern / unregistered
partnership firm in India vide notification No. FEMA. 325/RB-2014 dated November 12, 2014[1]
effective from January 05, 2014[2]
(date of publication in the Official Gazette), the Reserve Bank of India
(RBI) thereafter issued RBI/2014-2015/419 A.P. (DIR Series) Circular No. 59
dated January 22, 2015[3] specifying
the terms and conditions required to be complied with for considering the
proposal of ODI, by a proprietorship concern/ unregistered partnership firm in
India.
Under the ODI guidelines, the Regulation 19A relating to
Overseas Investment - Proprietorship Concern was Inserted vide notification No. FEMA.164/2007-RB
dated October 9, 20072 effective from March 27, 2006. As per the
Amended Regulation the criteria mentioned in Schedule II2 stands
deleted and that the same will be prescribed by the Reserve Bank from time to
time.
Comparison between Extant
and the Amended Regulations
Extant Regulation
|
Amended Regulation
|
In a Nutshell
|
Proprietary / unregistered partnership
firm in India being a recognised Star Export House with a proven track
record and a consistently high export performance satisfying the criteria as per Schedule II of the Notification
may set up a JV/WOS outside India with the prior approval of the Reserve
Bank.
Criteria for considering investment proposals outside
India by established proprietorship or unregistered partnership exporter
firms, Under Schedule II was as under:
a.
The Partnership /
Proprietorship firm is a DGFT recognised Star Export House (export exceeding
Rs.15 crore per annum);
b.
Exporter has proven track record
i.e. export outstanding does not exceed 10 per cent of the average export
realisation of the preceding three years;
c.
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;
d.
The exporter has not come
under the adverse notice of any Government agency like Directorate of
Enforcement, Central Bureau of Investigation 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;
e. The amount of investment outside India
· \10 per cent of
the average of last
three years’ export realisation
or
·
200 per cent of the
net owned funds of the proprietorship concern/
unregistered partnership firm in India.
Whichever is Lower |
A proprietorship
concern or an unregistered partnership firm in India, satisfying the criteria for Overseas Direct Investment as prescribed by the Reserve Bank from
time to time, may set up / acquire a Joint Venture (JV) / Wholly Owned
Subsidiary (WOS) outside India with the prior approval of the Reserve Bank.
The
revised terms and conditions are required to be complied with for considering
the proposal of ODI, by a proprietorship concern / unregistered partnership
firm in India, by the Reserve Bank under the approval route:
a.
The proprietorship
concern / unregistered partnership firm in India is classified as ‘Status
Holder’ as per the Foreign Trade Policy issued by the Ministry of Commerce
and Industry, Govt. of India from time to time;
b.
The proprietorship
concern / unregistered partnership firm in India has a proven track record,
i.e., the export outstanding does not exceed 10% of the average export
realisation of the preceding three years and a consistently high export
performance;
c.
The Authorised
Dealer bank is satisfied that the proprietorship concern / unregistered
partnership firm in India is KYC (Know Your Customer) compliant, engaged in
the proposed business and has turnover as indicated;
d.
The proprietorship
concern / unregistered partnership firm in India has not come under the
adverse notice of any Government agency like the Directorate of Enforcement,
Central Bureau of Investigation, Income Tax Department, etc. 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; and
e.
The amount of
proposed investment outside India
· 10 per cent of the average of last three years’
export realisation
or
·
200 per cent of the
net owned funds of the
proprietorship concern /
unregistered partnership
firm in India.
Whichever is Lower |
·
Schedule II stands deleted w.e.f. January 05,
2014.
·
Under the extant Regulation, Proprietary/
Unregistered partnership firm with a proven track record were recognised as
“Star Export House” and under the amended regulation the same are classified
as “Status Holder”
·
The criteria b to e of the amended regulation
are same as mentioned under Schedule II of the extant regulation.
·
Under amended regulation, the criteria is Open
ended and will be revised by the RBI from time to time.
·
The Directions contained in the circular will
not overrule, if any permission/ approval is required by any other law.
|
[3] http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9504&Mode=0
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