Safe Keeping Receipt and issues related to SKR

Recent turmoil in financial market necessitated the need of liquidity against assets to cover cash crunch in market.
Most of the western countries use A negotiable or non-negotiable bank-issued certificate representing the holding or ownership of an asset, such as art, precious metal, jewelry, mining rights, specific certified rights, everything a bank can hold. In a negotiable form typically issued for cash value market assets, in a no negotiable form for documentary purpose issued without a value assignement, the bank usually certifies what they hold, the terms and conditions of the holding and for whom they are holding.

In indian context few companies in india explored this route as a banking arrangement with the client for specific purpose. Though we cannot find it as credit instrument as per RBI, still it is not openly accepted by the banks as arrangement with the client. I learnt through my professional gurus that such an arrangement is encouraged as a banking arrangement with the client.
If the government/rbi provides proper guidelines for use of such facility, it will help the country to use it as tool for investment in other countries as well as help in establishing net worth of the entity intending for attracting capital.

It is common now a days that the use of SKR and its legality is always debated until it is proved by the client. Most of the times it is known fact that any new non conventional measure is not openly accepted by the indian nationalised banks.

finally fx trading allowed in india

It is happy to note that fx trading allowed but with only few traders.
here is the details
Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges

RBI/2008-09/122
A.P. (DIR Series) Circular No. 05

August 06, 2008

To

All Category - I Authorised Dealer banks

Madam / Sir,

Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges

Attention of Authorized Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [Notification No.FEMA/25/RB-2000 dated May 3, 2000], as amended from time to time.

2. Persons resident in India have a menu of over-the-counter (OTC) products, such as currency forwards, swaps and options for hedging their currency risk. In the context of liberalisation of the capital accounts, as also continued development of the financial markets, it is felt that wider hedging opportunities could enhance the flexibility for the residents to manage their currency risk dynamically. International experiences have also established that the exchange traded currency futures contracts facilitate efficient price discovery, enable better counterparty credit risk management, wider participation, trading of standardized product, reduce transaction costs, etc. Accordingly, as a part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents, it has been decided to introduce currency futures in recognized stock exchanges or new exchanges recognized by the Securities and Exchange Board of India (SEBI) in the country. The currency futures market would function subject to the directions, guidelines, instructions issued by the Reserve Bank and the SEBI, from time to time.

3. Persons resident in India are permitted to participate in the currency futures market in India subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008 [Notification No.FED.1/DG(SG)-2008 dated August 6, 2008] (Directions) issued by the Reserve Bank of India, a copy of which is annexed (Annex-I).

4. Necessary amendments to Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations, 2000 (Notification No. FEMA.25/RB-2000 dated May 3, 2000) (Regulations) have been notified in the Official Gazette vide G.S.R. No 577(E) dated August 5, 2008, a copy of which is annexed (Annex-II).

5. The above Directions have been issued under Section 45W of the Reserve Bank of India Act, 1934 and the above Regulations have been issued under clause (h) of sub-Section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999).

6. This circular has been issued under Sections 10 (4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(Salim Gangadharan)
Chief General Manager-In-Charge

Annex-I

[A. P. (DIR Series) Circular No. 05 dated August 06, 2008]

Currency Futures (Reserve Bank) Directions, 2008
Notification No. FED.1/DG(SG)-2008 dated August 6, 2008

The Reserve Bank of India having considered necessary in public interest and to regulate the financial system of the country to its advantage, in exercise of its powers conferred by section 45W of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, hereby gives the following directions to all the persons dealing in currency futures.

1. Short title and commencement of the directions

These directions may be called the Currency Futures (Reserve Bank) Directions, 2008 and they shall come into force with effect from August 6, 2008.

2. Definitions

(i) Currency Futures means a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract.

(ii) Currency Futures market means the market in which currency futures are traded.

3. Permission

(i) Currency futures are permitted in US Dollar - Indian Rupee or any other currency pairs, as may be approved by the Reserve Bank from time to time.

(ii) Only ‘persons resident in India’ may purchase or sell currency futures to hedge an exposure to foreign exchange rate risk or otherwise.

4. Features of currency futures

Standardized currency futures shall have the following features:

a. Only USD-INR contracts are allowed to be traded.
b. The size of each contract shall be USD 1000.
c. The contracts shall be quoted and settled in Indian Rupees.
d. The maturity of the contracts shall not exceed 12 months.
e. The settlement price shall be the Reserve Bank’s Reference Rate on the last trading day.

5. Participants

(i) No person other than 'a person resident in India' as defined in section 2(v) of the Foreign Exchange Management Act, 1999 (Act 42 of 1999) shall participate in the currency futures market.

(ii) Notwithstanding sub-paragraph (i), no scheduled bank or such other agency falling under the regulatory purview of the Reserve Bank under the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949 or any other Act or instrument having the force of law shall participate in the currency futures market without the permission from the respective regulatory Departments of the Reserve Bank. Similarly, for participation by other regulated entities, concurrence from their respective regulators should be obtained.

6. Membership

i. The membership of the currency futures market of a recognised stock exchange shall be separate from the membership of the equity derivative segment or the cash segment. Membership for both trading and clearing, in the currency futures market shall be subject to the guidelines issued by the SEBI.

ii. Banks authorized by the Reserve Bank of India under section 10 of the Foreign Exchange Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the currency futures market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:

a) Minimum net worth of Rs. 500 crores.
b) Minimum CRAR of 10 per cent.
c) Net NPA should not exceed 3 per cent.
d) Made net profit for last 3 years.

The AD Category - I banks which fulfill the prudential requirements should lay down detailed guidelines with the approval of their Boards for trading and clearing of currency futures contracts and management of risks.

(iii) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank.

7. Position limits

i. The position limits for various classes of participants in the currency futures market shall be subject to the guidelines issued by the SEBI.

ii. The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of the banks, on their own account, in the currency futures market shall form part of their NOP and AG limits.

8. Risk Management measures

The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time.

9. Surveillance and disclosures

The surveillance and disclosures of transactions in the currency futures market shall be carried out in accordance with the guidelines issued by the SEBI.

10. Authorisation to Currency Futures Exchanges / Clearing Corporations

Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise undertake the business relating to currency futures unless they hold an authorization issued by the Reserve Bank under section 10 (1) of the Foreign Exchange Management Act, 1999.

11. Powers of Reserve Bank

The Reserve Bank may from time to time modify the eligibility criteria for the participants, modify participant-wise position limits, prescribe margins and / or impose specific margins for identified participants, fix or modify any other prudential limits, or take such other actions as deemed necessary in public interest, in the interest of financial stability and orderly development and maintenance of foreign exchange market in India.

(Shyamala Gopinath)
Deputy Governor

[Annex-II

[A. P. (DIR Series) Circular No. 05 dated August 06, 2008]

Notification No. FEMA 177 /RB-2008

dated August 01, 2008

Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2008

In exercise of the powers conferred by clause (h) of sub-section 2 of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999) the Reserve Bank of India makes the following amendments in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, (Notification No. FEMA 25/RB-2000 dated May 3, 2000) namely:-

1. Short Title and Commencement:

(i) These Regulations may be called the Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2008.

(ii) They shall come in to force from the date of their publication in the Official Gazette.

2. Amendment of the Regulations

In the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000 dated May 3, 2000) (hereafter referred to as the principal regulations),

(i) in regulation 2, after clause (v), the following clause shall be inserted, namely:-
"(va) 'Currency Futures’ means a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract."

(ii) in regulation 3 of the principal regulations, after the words, "foreign exchange derivative contract", the words, "or currency futures" shall be inserted.

(iii) after regulation 5 of the principal regulations, the following regulation shall be inserted, namely :-

"5A. Permission to a person resident in India to enter into currency futures

A person resident in India may enter into a currency futures in a stock exchange recognized under section 4 of the Securities Contract (Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to such terms and conditions as may be set forth in the directions issued by the Reserve Bank of India from time to time."


(Salim Gangadharan)
Chief General Manager-in-Charge

Footnote:-

The principal regulations were published in the Official Gazette vide GSR No.411(E) dated May 8, 2000 in Part II, Section 3, sub-section (i) and subsequently amended vide –

GSR No.756(E) dt. 28.9.2000,
GSR No.264(E) dt. 09.4.2002,
GSR No.579(E) dt. 19.8.2002,
GSR No.222(E) dt. 18.3.2003,
GSR No.532(E) dt. 09.7.2003,
GSR No.880(E) dt. 11.11.2003,
GSR No.881(E) dt. 11.11.2003,
GSR No.750(E) dt. 28.12.2005,
GSR No.222(E) dt. 19.04.2006,
GSR No.223(E) dt. 19.04.2006 and
GSR No.760(E) dt.07.12.2007
Published in the Official Gazette of Government
of India - Extraordinary - Part-II, Section 3,
Sub-Section (i) dated 05.08.2008 - G.S.R.No.577(E)

Forex Facilities for Residents

Introduction:

The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999. Under the Act, freedom has been granted for buying and selling of foreign exchange for undertaking current account transactions. The Government has issued Foreign Exchange Management (Current Account Transactions) Rules,2000 which have been notified vide Notifications GSR. 381(E) dated May 3, 2000, S.O. 301(E) dated March 30, 2001 and GSR.608(E) dated September 13, 2004 as amended from time to time. The last amendment to the G.S.R is vide Notification No., G.S.R. No.412 (E) dated July 11, 2006.

Under the Foreign Exchange Management Act, 1999 (FEMA) [which replaced FERA], which has come into force with effect from June 1, 2000, all transactions involving foreign exchange have been classified either as Capital or Current Account transactions. All transactions undertaken by a resident that do not alter his assets or liabilities outside India are current account transactions. In terms of Section 5 of the FEMA, persons resident in India are free to buy or sell foreign exchange for any current account transaction except for those transactions for which drawal of foreign exchange has been prohibited by Central Government, vide its Notification referred to above. A copy of the Notification is available in the Official Gazette as well as an annexure to our Master Circular on Miscellaneous Remittances available at our website www.mastercirculars.rbi.org.in.

These details are available on the Reserve Bank’s website as well as with the authorised dealers and regional offices of the Foreign Exchange Department of Reserve Bank. This FAQ attempts to answer all such questions in simple language.

I. Guidelines on Travel Related Matters

1. Who is a resident?

A 'person resident in India' is defined in Section 2(v) of FEMA, 1999 as:

A person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include –

(A) a person who has gone out of India or who stays outside India, in either case -

for or on taking up employment outside India, or

for carrying on outside India a business or vocation outside India, or

for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than –

for or on taking up employment in India, or

for carrying on in India a business or vocation in India, or

for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

any person or body corporate registered or incorporated in India,

an office, branch or agency in India owned or controlled by a person resident outside India,

an office, branch or agency outside India owned or controlled by a person resident in India;

That is to qualify as a resident the person concerned will have to fulfill the criterion regarding (a) the duration of stay and (b) the purpose of stay.

The term Person Resident Outside India is defined in the Act as a person who is not a person resident in India.

2. From where one can buy foreign exchange?

Foreign exchange can be purchased from any authorised dealer. Besides authorised dealers, full-fledged money changers are also permitted to release exchange for business and private visits.

3. Who is an authorized dealer?

An authorized dealer is normally a bank specifically authorized by the Reserve Bank under Section 10(1) of FEMA,1999, to deal in foreign exchange or foreign securities (List available on www.fedai.org.in ).

4. How much exchange is available for a business trip?

Authorized dealers can release foreign exchange up to USD 25,000 for a business trip to any country other than Nepal and Bhutan. Release of foreign exchange exceeding USD 25,000 for a travel abroad (other than Nepal and Bhutan) for business purposes, irrespective of period of stay, requires prior permission from Reserve Bank. Visits in connection with attending of an international conference, seminar, specialised training, study tour, apprentice training, etc., are treated as business visits.

Incidentally, no release of foreign exchange is admissible for any kind of travel to Nepal and Bhutan or for any transaction with persons resident in Nepal and Bhutan.

5. Can one obtain additional foreign exchange for medical treatment outside India?

Authorized dealers may release foreign exchange upto USD 100,000 or its equivalent to resident Indians for medical treatment abroad on self declaration basis of essential details, without insisting on any estimate from a hospital/doctor in India/abroad. A person visiting abroad for medical treatment can obtain foreign exchange exceeding the above limit, provided the request is supported by an estimate from a hospital/doctor in India/abroad. This release of foreign exchange of USD 100,000 is to meet the expenses involved in treatment and it is in addition to the amount of USD 25,000 released for maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/check-up.

6. How much exchange is available for studies outside India?

Authorized dealers may release foreign exchange for an amount of USD 100,000 per academic year or the estimate received from the institution abroad, whichever is higher. Students going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligible for all the facilities available to NRIs under FEMA. In addition, they can receive remittances up to USD 100,000 from close relatives (as defined in Section 6 of the Companies Act,1956) from India on self-declaration, towards maintenance, which could include remittances towards their studies also. Educational and other loans availed of by students as resident in India can be allowed to continue. There is no dilution in the existing remittance facilities to students in regard to their academic pursuits.

7. How much foreign exchange can one buy when traveling abroad on private visits to a country outside India?

In connection with private visits abroad, viz., for tourism purposes, etc., foreign exchange up to USD10,000, in any one financial year may be obtained from an authorised dealer on a self-declaration basis. The ceiling of USD10,000 is applicable in aggregate and foreign exchange may be obtained for one or more than one visit provided the aggregate foreign exchange availed of in one financial year does not exceed the prescribed ceiling of USD10,000 {The facility was earlier called B.T.Q or F.T.S.}. This limit of USD10,000 per financial year can be availed of by a person along with foreign exchange for travel abroad for any purpose, including for employment or immigration or studies. However, no foreign exchange is available for visit to Nepal and/or Bhutan for any purpose.

8. How much foreign exchange is available to a person going abroad on employment?

Person going abroad for employment can draw foreign exchange up-to USD100,000 from any authorised dealer in India on the basis of self-declaration.

9. How much foreign exchange is available to a person going abroad on emigration?

Person going abroad on emigration can draw foreign exchange upto USD100,000 on self- declaration basis from an authorized dealer in India. This amount is only to meet the incidental expenses in the country of emigration. No amount of foreign exchange can be remitted outside India to become eligible or for earning points or credits for immigration. All such remittances require prior permission of the Reserve Bank.

10. Is there any category of visit which requires prior approval from the Reserve Bank or Govt. of India?

In case of dance troupes, artistes, etc., who wish to undertake cultural tours abroad, they should obtain prior approval from the Ministry of Human Resources Development, Government of India, New Delhi.

11. How much foreign exchange can be purchased in foreign currency notes while buying exchange for travel abroad?

Travellers are allowed to purchase foreign currency notes/coins only up to USD 2000. Balance amount can be taken in the form of travellers cheque or banker’s draft. Exceptions to this are (a) travellers proceeding to Iraq and Libya can draw foreign exchange in the form of foreign currency notes and coins not exceeding USD 5000 or its equivalent; (b) travellers proceeding to the Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States can draw entire foreign exchange in the form of foreign currency notes or coins.

12. Do same Rules apply to persons going for studies abroad?

For the purpose of studies abroad, exchange for maintenance expenses is released in the form of (i) currency notes up to USD 2,000, (ii) the balance foreign exchange may be taken in the form of travellers cheques or bank draft payable overseas.

13. How much in advance one can buy foreign exchange for travel abroad?

The foreign exchange acquired for any purpose has to be used within 180 days of purchase. In case it is not possible to use the foreign exchange within the period of 180 days, it should be surrendered to an authorised person.

14. Can one pay by cash full rupee equivalent of foreign exchange being purchased for travel abroad ?

Foreign exchange for travel abroad can be purchased from authorized person against rupee payment in cash up to Rs.50,000/-. However, if the rupee equivalent exceeds Rs.50,000/-, the entire payment should be made by way of a crossed cheque/banker’s cheque/pay order/demand draft only.

15. Is there any time frame for a traveller who has returned to India to surrender foreign exchange?

On return from a foreign trip, travellers are required to surrender unspent foreign exchange held in the form of currency notes and travellers cheques within 180 days of return. However, they are free to retain foreign exchange upto USD 2,000, in the form of foreign currency notes or TCs for future use or credit to their RFC(Domestic) Accounts without any limit.

16. On return to India can one retain foreign exchange?

Residents have the choice of either holding foreign currency up to USD 2,000 or its equivalent or credit the amount to their RFC(Domestic) Accounts provided the foreign exchange was acquired by them:-

a. while on a visit abroad as payment for services not arising from any business in or anything done in India; or

b. as honorarium or gift or for services rendered or in settlement of any lawful obligation from any person who is not resident in India and who is on a visit to India; or

c. as honorarium or gift while on a visit to any place outside India; or

d. from an authorised person for travel abroad and represents the unspent amount thereof.

17. Is one required to surrender foreign coins also to an authorised dealer?

The residents can hold foreign coins without any limit.

18. How much foreign exchange can a resident individual send as gift / donation to a person resident outside India?

Limit of USD 200,000 per financial year under the Liberalised Remittance Scheme would also include remittances towards gift and donation by a resident individual. Accordingly, under the Scheme, any resident individual, if he so desires, may remit the entire limit of USD 200,000 in one financial year as gift to a person residing outside India or as donation to a charitable/educational/ religious/cultural organization outside India. Remittances exceeding the limit will require prior permission from the Reserve Bank.

19. How much foreign exchange can residents other than individuals send as gift / donation to a person resident outside India?

ADs have been permitted to make remittances on account of donations by corporates for some specified purposes subject to a limit of one per cent of the foreign exchange earnings during the previous three financial years or USD 5 million, whichever is less. Other residents like partnership firms, trusts etc., are free to remit up to USD 5000 per annum per donor/remitter each as gift and donation. Remittances exceeding the limit will require prior permission from the Reserve Bank.

20. Is one permitted to use International Credit Card (ICC) for undertaking foreign exchange transactions?

Use of the International Credit Cards (ICCs) / ATMs/ Debit Cards can be made for making personal payments like subscription to foreign journals, internet subscription, etc., and for travel abroad in connection with various purposes. The entitlement of foreign exchange on International Credit Cards (ICCs) is limited by the credit limit fixed by the card issuing authority only. With ICCs one can (i) meet expenses/make purchases while abroad (ii) make payments in foreign exchange for purchase of books and other items through internet in India. If the person has a foreign currency account in India or with a bank overseas, he/she can even obtain ICCs of overseas banks and reputed agencies.

Use of these instruments for payment in foreign exchange in Nepal and Bhutan is not permitted.

21. While coming into India how much Indian currency can be brought in?

A person coming into India from abroad can bring in with him Indian currency notes within the limits given below:

a. up to Rs. 5,000 from any country other than Nepal or Bhutan, and

b. any amount in denomination not exceeding Rs.100 from Nepal or Bhutan.

22. While going abroad how much foreign exchange, in cash, can a person carry?

A person is allowed to carry foreign exchange in the form of currency notes/coins up to USD 2,000 or its equivalent only. Balance amount as applicable can be carried in the form of travellers cheque or banker/s draft. (In this connection please see item No.11).

23. While going abroad how much Indian currency, in cash, can a person carry?

Residents are free to take outside India (other than to Nepal and Bhutan) currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs. 5,000/ - per person. They may take or send outside India (other than to Nepal and Bhutan) commemorative coins not exceeding two coins each.

Explanation : 'Commemorative Coin' includes coin issued by Government of India Mint to commemorate any specific occasion or event and expressed in Indian currency.

A person can take or send out of India to Nepal or Bhutan, currency notes of Government of India and Reserve Bank of India notes (other than notes of denominations of above Rs. 100);

24. While coming into India how much foreign exchange can be brought in?

A person coming into India from abroad can bring with him foreign exchange without any limit. However, if the aggregate value of the foreign exchange in the form of currency notes, bank notes or travellers cheques brought in exceeds USD 10,000/- or its equivalent and/or the value of foreign currency exceeds USD 5,000/- or its equivalent, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.

25. Is one required to follow complete export procedure when a gift parcel is sent outside India?

A person resident in India is free to send (export) any gift article of value not exceeding Rs. 5,00,000 provided export of that item is not prohibited under the extant Foreign Trade Policy and exporter submits a declaration that goods of gift are not more than Rs. 5,00,000 in value.

26. How much jewellery one can carry while going abroad?

Taking personal jewellery out of India is governed by Baggage Rules framed under Foreign Trade Policy by the Government of India. No approval of Reserve Bank is required in this case.

27. Can a resident extend local hospitality to a non-resident?

A person resident in India is free to make any payment in Indian Rupees towards meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India.

28. Can residents purchase air tickets in India for their travel not touching India?

Residents may book their tickets in India for their visit to any third country. That is, residents can book their tickets for travel, for instance from London to New York, through domestic/foreign airlines in India itself.

29. Can a resident open a foreign currency denominated account in India?

Persons resident in India are permitted to maintain foreign currency accounts in India under the following three Schemes:

a. Exchange Earners Foreign Currency Accounts:-

All categories of resident foreign exchange earners can credit up to 100 per cent of their foreign exchange earnings, as specified in the paragraph 1 (A) of the Schedule to Notification No.FEMA.10/2000-RB dated 3rd May, 2000 and as amended from time to time, to their EEFC Account with an authorised dealer in India. Funds held in EEFC account can be utilised for all permissible current account transactions and also for approved capital account transactions as specified by the extant Rules/Regulations/ Notifications/ Directives issued by the Government/RBI from time to time. EEFC account holders can now maintain outstanding balances to the extent of USD 1 million in the form of term deposits up to one year maturing on or before 31st October 2008. The rate of interest will be determined by the banks themselves.

b. Resident Foreign Currency Accounts:-

Returning Indians, i.e., those Indians, who were non-residents earlier, and are returning now for permanent stay in India, are permitted to open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to keep their foreign currency assets. Assets held outside India at the time of return can be credited to such accounts. The foreign exchange (i) received or acquired as gift or inheritance from a person referred to sub-section (4) of section 6 of FEMA,1999 or (ii) referred to in clause (c) of section 9 of the Act or acquired as gift or inheritance therefrom or (iii) received as the proceeds of life insurance policy claims/maturity/ surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority may also be credited to this account.

The funds in RFC account are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment outside India.

c. Resident Foreign Currency (Domestic) Account:-

A person resident in India can open, hold and maintain with an authorized dealer in India, a Resident Foreign Currency (Domestic) Account, out of foreign exchange acquired in the form of currency notes, Bank notes and travellers cheques from any of the sources like, payment for services rendered abroad, as honorarium, gift, services rendered or in settlement of any lawful obligation from any person not resident in India. The account may also be credited with/opened out of foreign exchange earned like proceeds of export of goods and/or services, royalty, honorarium, etc., and/or gifts received from close relatives (as defined in the Companies Act) and repatriated to India through normal banking channels. The account shall be maintained in the form of Current Account and shall not bear any interest. There is no ceiling on the balances in the account.

30. Can a person resident in India hold assets outside India?

In terms of sub-section 4, of Section (6) of the Foreign Exchange Management Act, 1999, a person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. (Please also refer to the Liberalised Remittance Scheme of USD 200,000 discussed below).

II. Liberalised Remittance Scheme of USD 200,000.

31. What is the Liberalised Remittance Scheme of USD 200,000?

This is a facility extended to all resident individuals under which, they may freely remit upto USD 200,000 per financial year for any permissible current or capital account transaction or a combination of both.

32. What are the purpose/s for which remittance can be made under the Scheme?

This facility is available for making remittance/s for any permissible current or capital account transaction or a combination of both. It is not available for purposes specifically prohibited (Schedule I) or regulated by the Government of India (Schedule II) of Foreign Exchange Management (Current Account Transactions) Rules, 2000.

33. Who is eligible to avail of this Liberalised Remittance Facility?

The facility is available to resident individuals only.

34. Provide an illustrative list of capital account transactions permitted under the scheme?

The remittance under the Scheme is available to the resident individuals for any permitted current or capital account transactions or a combination of both. Under the Scheme, resident individuals can acquire and hold immovable property or shares or debt instruments or any other assets outside India, without prior approval of the Reserve Bank. Individuals can also open, maintain and hold foreign currency accounts with banks outside India. However, it is clarified that remittance from India for margins or margin calls to overseas exchanges / overseas counterparty are not allowed under the Scheme.

The remittance facility under the Scheme is also not available for the following:

i) Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery/sweep stakes, tickets, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
ii) Remittances made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan.
iii) Remittances made directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non co-operative countries and territories” from time to time.
iv) Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

35. Whether this facility is in addition to existing facilities detailed in Schedule III under remittances?

The facility under the Scheme is in addition to those already available for private travel, business travel, studies, medical treatment, etc., as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000. The Scheme can also be used for these purposes. However, gift and donation remittances cannot be made separately and have to be made under the Scheme only. Accordingly, resident individuals can remit gifts and donations up to USD 200,000 per financial year under the Scheme.

36. Whether resident individuals under this Scheme have to repatriate the accrued yield on deposits/investments abroad, over and above the principal amount?

The investor can retain and reinvest the income earned on investments made under the Scheme. Currently, the residents are not required to repatriate the funds or income generated out of investments made under the Scheme.

37. Whether remittance under the Scheme is on gross basis or net basis (net of repatriation from abroad)?

Remittance under this scheme is on a gross basis.

38. Whether minors can also avail of the remittance facility?

The facility is available to all the resident individuals including minors.

39. Whether remittances under the facility can be consolidated in respect of family members?

Remittances under the facility can be consolidated in respect of family members subject to the individual family members complying with the terms and conditions of the Scheme.

40. Whether the Scheme can be used for purchase of objects of art (paintings, etc.,) either directly or through auction house?

Remittances under the Scheme can be used for purchasing objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India.

41. Whether small value remittance of USD 5000/- (gifts, donation, etc.,) is in addition to LRS of USD 200,000?

Remittance against gifts and donations cannot be made separately and have to be made under the Scheme only and therefore, no separate limits for gift and donation are available

42. Whether the AD is required to check permissibility of remittances based on nature of transaction or allow the same based on remitters declaration?

AD will be guided by the nature of transaction as declared by the remitter and will certify that the remittance is in conformity with the instructions issued by Reserve Bank.

43.Whether under this scheme a customer can remit funds for acquisition of ESOPs?

The Scheme can also be used for remittance of funds for acquisition of ESOPs.

44. Whether the scheme is in addition to acquisition of ESOPs linked to ADR/GDR (i.e USD 50,000/- for a block of 5 calendar years)?

The remittance under the Scheme is in addition to acquisition of ESOPs linked to ADR/GDR.

45. Whether the Scheme is in addition to acquisition of qualification shares (i.e USD 20,000/- or 1% of paid up capital of overseas company whichever is lower)?

The remittance under the Scheme is in addition to acquisition of qualification shares.

46. Whether a resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc., under this scheme?

A resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc under this Scheme. Further, the resident can invest in such securities out of the bank account opened abroad under the Scheme.

47. Whether an individual, who has availed of a loan abroad while a non-resident can repay the same on return to India, under this Scheme as a resident?

This is permissible.

48. Whether it is mandatory for resident individuals to have PAN number for sending outward remittances under the Scheme?

It is mandatory to have PAN number to make remittances under the Scheme.

49. In case a resident individual requests for an outward remittance by way of issuance of a demand draft (either in his own name or in the name of the beneficiary with whom he intends putting through the permissible transactions) at the time of his private visit abroad, whether against self declaration of the remitter such an outward remittance can be effected?

Such outward remittance in the form of a DD can be effected against the declaration by the resident individual in the format prescribed under the Scheme.

50. Is there any frequency for the remittance?

There is no restriction on the frequency. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the limit of USD 200,000/-.

51. Can residents avail of this facility for acquiring immovable property and other assets abroad?

Yes. Individuals are free to use this Scheme to acquire and hold immovable property, shares or any other asset outside India without prior approval of Reserve Bank.

52. Can individuals open foreign currency account abroad for making remittance under the Scheme?

Yes. Individuals are free to open, hold and maintain foreign currency accounts with a bank outside India for making remittances under the Scheme without the prior approval of Reserve Bank. The account can be used for putting through any transaction connected with or arising from remittances under the Scheme.

53. What are the requirements to be complied with by the remitter?

The individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made.The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance. If the applicant seeking to make the remittance is a new customer of the bank, Authorised Dealers should carry out due diligence on the opening, operation and maintenance of the account. Further the AD should obtain bank statement for the previous year from the applicant to satisfy themselves regarding the source of funds. If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained. He has to furnish an application-cum-declaration in the specified format regarding the purpose of the remittance and declare that the funds belong to him and will not be used for purposes prohibited or regulated under the Scheme.

54. Can an individual, who has repatriated the amount remitted during the financial year, avail of the facility once again?

Once a remittance is made for an amount upto USD 200,000 during the financial year, he would not be eligible to make any further remittances under this route, even if the proceeds of the investments have been brought back into the country.

55. Can remittances be made only in US Dollars?

The remittances can be made in any currency equivalent to USD 200,000 in a financial year.

56. In the past resident individuals could invest in overseas companies listed on a recognised stock exchange abroad and which has the shareholding of at least 10 per cent in an Indian company listed on a recognised stock exchange in India. Does this condition still exist?

Investment by resident individual in overseas companies is subsumed under the Scheme of USD 200,000. The requirement of 10 per cent reciprocal shareholding in the listed Indian companies by such overseas companies has since been dispensed with.

III. Guidelines for Financial Intermediaries offering special schemes, protection under the Scheme.

57. Are intermediaries expected to seek specific approval for making overseas investments available to clients?

Banks including those not having operational presence in India are required to obtain prior approval from Reserve Bank for soliciting deposits for their foreign/overseas branches or for acting as agents for overseas mutual funds or any other foreign financial services company.

58. Are there any restrictions on the kind/quality of debt or equity instruments an individual can invest in?

No ratings or guidelines have been prescribed under the Liberalised Remittance Scheme of USD 200,000 on the quality of the investment an individual can make. However, the individual investor is expected to exercise due diligence while taking a decision regarding the investments which he or she proposes to make.

59. Whether credit facilities in Indian Rupees or foreign currency would be permissible against security of such deposits?

No. The Scheme does not envisage extension of credit facility against the security of the deposits.

60. Can bankers open foreign currency accounts in India for residents under the Scheme?

No. Banks in India cannot open foreign currency accounts in India for residents under the Scheme.

61. Can an Offshore Banking Unit (OBU) in India be treated on par with a branch of the bank outside India for the purpose of opening of foreign currency accounts by residents under the Scheme?

No. For the purpose of the Scheme, an OBU in India is not treated as an overseas branch of a bank in India.

General Information

For further details/guidance, please approach any bank authorised to deal in foreign exchange or contact Regional Offices of the Foreign Exchange Department of the Reserve Bank.

Opening Branch Offices

company expands its business by opening up its branch offices in various parts of the domestic country as well as in other countries. A branch office refers to an establishment which carries on substantially the same business and activity as is carried out by its Head Office. Such offices help the company in:-

1. Spreading its business to diverse locations and thus increasing the customer base
2. Bringing its product closer to the customers by increasing their accessibility to it
3. Making the distribution and marketing of its goods and services easier and more effective.

In other words, branch offices help in expanding the size of the market for a company's product by attracting more customers; widening the scope of its trading and manufacturing activities as well as bringing more opportunities and opening unexplored avenues for it. Thus, these offices help to fuel the growth of the company and enhance its profitability on a sustained basis.

Procedure for opening branch offices by a domestic company

It is provided under the Companies Act,1956, according to which:-

In order to open new branch offices in India, a domestic company must pass a resolution in its Board meeting specifying:-

* The business to be carried out at that particular branch office
* The appointment of somebody to look after the day-to-day business of the branch and operate the bank account of that branch
* The provision for authorising somebody to make arrangement for accommodation,establishment and other requirements which are necessary to run that branch office

The person so authorised in the Board meeting may also be delegated certain powers,on behalf of the company,which are as follows:-

* The power to make calls on shareholders in respect of money unpaid on their shares;
* The power to issue debentures;
* The power to borrow money otherwise than on debentures;
* The power to invest the funds of the company;
* The power to make loans.

However, the business to be transacted at the new proposed branch is covered by the Memorandum of Association of the company. The Memorandum of Association is the charter of the company which defines the objective of its formation, the scope of its operations as well as inform its stake holders about the permitted range of the enterprise. It is ultra vires for a company to act beyond the scope of its memorandum and any departure cannot be validated even if assented to by all the members of the company. It is the principal document of a company without which it cannot be registered. It regulates the procedures relating to the expansion of business of the company through opening new branches.

But if a company wants to commence new business at the proposed branch office, which is not incidental to its existing business, then it has to pass a special resolution. Thereafter, it has to file a declaration in e-Form No.20A with the concerned Registrar of Companies (ROC) within thirty days of passing the resolution and also the special resolution in e-Form No.23, after paying requisite fee as prescribed under the Act.

Procedure for opening branch offices by a foreign company

The opening up of branch offices is one of the options by which a foreign company can set up its business operations in India. It needs to obtain a prior permission from Reserve Bank of India (RBI) for setting up such offices in India. As per the guidelines issued by RBI, these branch offices are subjected to the following conditions:-

* The branch office cannot expand its activities or undertake any new trading, commercial or industrial activity other than those which are expressly approved by the RBI
* The entire expense of the branch office in India will be met either out of the funds received by it from abroad through normal banking channels or through income generated by it in India
* The branch office cannot accept any deposits in India;
* The commission earned by the branch office from parties abroad for any agency business will be repatriated to India through normal banking channels.

Also, the foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch offices in India for the following purposes:

* Undertaking export or import of goods
* Rendering professional or consultancy services
* Carrying out research work, in which the parent company is engaged (provided that the results of the research work are made available to the Indian Companies)
* Promoting technical or financial collaborations between Indian companies and the parent or overseas group company
* Representing the parent company in India and acting as buying/selling agents in India
* Rendering services in information technology and development of software in India
* Rendering technical support to the products supplied by the parent/ overseas group companies
* Foreign airlines or shipping companies are also permitted to open their branch offices in India.

But, branch offices can undertake only trading activities and are not permitted to carry out manufacturing activities on its own, though it is permitted to sub contract these to Indian manufacturers. Such offices are a part of the foreign company and are not treated as a separate legal entity.

For opening a branch office, the foreign company needs to submit its formal application to the Chief General Manager, Exchange Control Department (Foreign Investment Division), RBI Central Office, Mumbai in the form FNC-1. These applications are considered on a case-to-case basis. The RBI generally gives permission in a time span of about 2 to 4 weeks. The application must include the following details:-

* Operating history of the company worldwide
* Proposed interests and activities in India
* Reasons for wanting to open a branch office and
* Any foreign exchange implications for such matters.

The branch offices may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines.They need not retain any profits as reserves in India. But in certain cases, where income is deemed to have originated in India and such income includes royalties, fees for technical services, interest and capital gains including capital gains from share of capital in India, branch offices may repatriate profits to their Head Office without obtaining prior approval from RBI.

Mergers and Acquisitions

An entrepreneur may grow its business either by internal expansion or by external expansion. In the case of internal expansion, a firm grows gradually over time in the normal course of the business, through acquisition of new assets, replacement of the technologically obsolete equipments and the establishment of new lines of products. But in external expansion, a firm acquires a running business and grows overnight through corporate combinations. These combinations are in the form of mergers, acquisitions,amalgamations and takeovers and have now become important features of corporate restructuring. They have been playing an important role in the external growth of a number of leading companies the world over. They have become popular because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalisation of businesses. In the wake of economic reforms, Indian industries have also started restructuring their operations around their core business activities through acquisition and takeovers because of their increasing exposure to competition both domestically and internationally.

Mergers and acquisitions are strategic decisions taken for maximisation of a company's growth by enhancing its production and marketing operations. They are being used in a wide array of fields such as information technology, telecommunications, and business process outsourcing as well as in traditional businesses in order to gain strength, expand the customer base, cut competition or enter into a new market or product segment.

Mergers or Amalgamations

A merger is a combination of two or more businesses into one business. Laws in India use the term 'amalgamation' for merger. The Income Tax Act,1961 [Section 2(1A)] defines amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company, in such a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company.

Thus, mergers or amalgamations may take two forms:-

* Merger through Absorption:- An absorption is a combination of two or more companies into an 'existing company'. All companies except one lose their identity in such a merger. For example, absorption of Tata Fertilisers Ltd (TFL) by Tata Chemicals Ltd (TCL). TCL, an acquiring company(a buyer), survived after merger while TFL, an acquired company (a seller), ceased to exist. TFL transferred its assets, liabilities and shares to TCL.
* Merger through Consolidation:- A consolidation is a combination of two or more companies into a 'new company'. In this form of merger, all companies are legally dissolved and a new entity is created . Here, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares. For example, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and Indian Reprographics Ltd into an entirely new company called HCL Ltd.

A fundamental characteristic of merger (either through absorption or consolidation) is that the acquiring company (existing or new) takes over the ownership of other companies and combines their operations with its own operations.

Besides,there are three major types of mergers:-

* Horizontal merger:- is a combination of two or more firms in the same area of business. For example, combining of two book publishers or two luggage manufacturing companies to gain dominant market share.
* Vertical merger:- is a combination of two or more firms involved in different stages of production or distribution of the same product. For example, joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company. Vertical merger may take the form of forward or backward merger. When a company combines with the supplier of material, it is called backward merger and when it combines with the customer, it is known as forward merger.
* Conglomerate merger:- is a combination of firms engaged in unrelated lines of business activity. For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies. L&T and Voltas Ltd are examples of such mergers.

Acquisitions and Takeovers

An acquisition may be defined as an act of acquiring effective control by one company over assets or management of another company without any combination of companies. Thus, in an acquisition two or more companies may remain independent, separate legal entities, but there may be a change in control of the companies. When an acquisition is 'forced' or 'unwilling', it is called a takeover. In an unwilling acquisition, the management of 'target' company would oppose a move of being taken over. But, when managements of acquiring and target companies mutually and willingly agree for the takeover, it is called acquisition or friendly takeover.

Under the Monopolies and Restrictive Practices Act, takeover meant acquisition of not less than 25 percent of the voting power in a company. While in the Companies Act (Section 372), a company's investment in the shares of another company in excess of 10 percent of the subscribed capital can result in takeovers. An acquisition or takeover does not necessarily entail full legal control. A company can also have effective control over another company by holding a minority ownership.

Advantages of Mergers & Acquisitions

The most common motives and advantages of mergers and acquisitions are:-

* Accelerating a company's growth, particularly when its internal growth is constrained due to paucity of resources. Internal growth requires that a company should develop its operating facilities- manufacturing, research, marketing, etc. But, lack or inadequacy of resources and time needed for internal development may constrain a company's pace of growth. Hence, a company can acquire production facilities as well as other resources from outside through mergers and acquisitions. Specially, for entering in new products/markets, the company may lack technical skills and may require special marketing skills and a wide distribution network to access different segments of markets. The company can acquire existing company or companies with requisite infrastructure and skills and grow quickly.
* Enhancing profitability because a combination of two or more companies may result in more than average profitability due to cost reduction and efficient utilization of resources. This may happen because of:-


o Economies of scale:- arise when increase in the volume of production leads to a reduction in the cost of production per unit. This is because, with merger, fixed costs are distributed over a large volume of production causing the unit cost of production to decline. Economies of scale may also arise from other indivisibilities such as production facilities, management functions and management resources and systems. This is because a given function, facility or resource is utilized for a large scale of operations by the combined firm.
o Operating economies:- arise because, a combination of two or more firms may result in cost reduction due to operating economies. In other words, a combined firm may avoid or reduce over-lapping functions and consolidate its management functions such as manufacturing, marketing, R&D and thus reduce operating costs. For example, a combined firm may eliminate duplicate channels of distribution, or crate a centralized training center, or introduce an integrated planning and control system.
o Synergy:- implies a situation where the combined firm is more valuable than the sum of the individual combining firms. It refers to benefits other than those related to economies of scale. Operating economies are one form of synergy benefits. But apart from operating economies, synergy may also arise from enhanced managerial capabilities, creativity, innovativeness, R&D and market coverage capacity due to the complementarity of resources and skills and a widened horizon of opportunities.

* Diversifying the risks of the company, particularly when it acquires those businesses whose income streams are not correlated. Diversification implies growth through the combination of firms in unrelated businesses. It results in reduction of total risks through substantial reduction of cyclicality of operations. The combination of management and other systems strengthen the capacity of the combined firm to withstand the severity of the unforeseen economic factors which could otherwise endanger the survival of the individual companies.
* A merger may result in financial synergy and benefits for the firm in many ways:-


o By eliminating financial constraints
o By enhancing debt capacity. This is because a merger of two companies can bring stability of cash flows which in turn reduces the risk of insolvency and enhances the capacity of the new entity to service a larger amount of debt
o By lowering the financial costs. This is because due to financial stability, the merged firm is able to borrow at a lower rate of interest.

* Limiting the severity of competition by increasing the company's market power. A merger can increase the market share of the merged firm. This improves the profitability of the firm due to economies of scale. The bargaining power of the firm vis-à-vis labour, suppliers and buyers is also enhanced. The merged firm can exploit technological breakthroughs against obsolescence and price wars.

Procedure for evaluating the decision for mergers and acquisitions

The three important steps involved in the analysis of mergers and acquisitions are:-

* Planning:- of acquisition will require the analysis of industry-specific and firm-specific information. The acquiring firm should review its objective of acquisition in the context of its strengths and weaknesses and corporate goals. It will need industry data on market growth, nature of competition, ease of entry, capital and labour intensity, degree of regulation, etc. This will help in indicating the product-market strategies that are appropriate for the company. It will also help the firm in identifying the business units that should be dropped or added. On the other hand, the target firm will need information about quality of management, market share and size, capital structure, profitability, production and marketing capabilities, etc.
* Search and Screening:- Search focuses on how and where to look for suitable candidates for acquisition. Screening process short-lists a few candidates from many available and obtains detailed information about each of them.
* Financial Evaluation:- of a merger is needed to determine the earnings and cash flows, areas of risk, the maximum price payable to the target company and the best way to finance the merger. In a competitive market situation, the current market value is the correct and fair value of the share of the target firm. The target firm will not accept any offer below the current market value of its share. The target firm may, in fact, expect the offer price to be more than the current market value of its share since it may expect that merger benefits will accrue to the acquiring firm.

A merger is said to be at a premium when the offer price is higher than the target firm's pre-merger market value. The acquiring firm may have to pay premium as an incentive to target firm's shareholders to induce them to sell their shares so that it (acquiring firm) is able to obtain the control of the target firm.

Regulations forMergers & Acquisitions

Mergers and acquisitions are regulated under various laws in India. The objective of the laws is to make these deals transparent and protect the interest of all shareholders. They are regulated through the provisions of :-

* The Companies Act, 1956

The Act lays down the legal procedures for mergers or acquisitions :-
o Permission for merger:- Two or more companies can amalgamate only when the amalgamation is permitted under their memorandum of association. Also, the acquiring company should have the permission in its object clause to carry on the business of the acquired company. In the absence of these provisions in the memorandum of association, it is necessary to seek the permission of the shareholders, board of directors and the Company Law Board before affecting the merger.
o Information to the stock exchange:- The acquiring and the acquired companies should inform the stock exchanges (where they are listed) about the merger.
o Approval of board of directors:- The board of directors of the individual companies should approve the draft proposal for amalgamation and authorise the managements of the companies to further pursue the proposal.
o Application in the High Court:- An application for approving the draft amalgamation proposal duly approved by the board of directors of the individual companies should be made to the High Court.
o Shareholders' and creators' meetings:- The individual companies should hold separate meetings of their shareholders and creditors for approving the amalgamation scheme. At least, 75 percent of shareholders and creditors in separate meeting, voting in person or by proxy, must accord their approval to the scheme.
o Sanction by the High Court:- After the approval of the shareholders and creditors, on the petitions of the companies, the High Court will pass an order, sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date of the court's hearing will be published in two newspapers, and also, the regional director of the Company Law Board will be intimated.
o Filing of the Court order:- After the Court order, its certified true copies will be filed with the Registrar of Companies.
o Transfer of assets and liabilities:- The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date.
o Payment by cash or securities:- As per the proposal, the acquiring company will exchange shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.

* The Competition Act, 2002

The Act regulates the various forms of business combinations through Competition Commission of India. Under the Act, no person or enterprise shall enter into a combination, in the form of an acquisition, merger or amalgamation, which causes or is likely to cause an appreciable adverse effect on competition in the relevant market and such a combination shall be void. Enterprises intending to enter into a combination may give notice to the Commission, but this notification is voluntary.But, all combinations do not call for scrutiny unless the resulting combination exceeds the threshold limits in terms of assets or turnover as specified by the Competition Commission of India. The Commission while regulating a 'combination' shall consider the following factors :-
o Actual and potential competition through imports;
o Extent of entry barriers into the market;
o Level of combination in the market;
o Degree of countervailing power in the market;
o Possibility of the combination to significantly and substantially increase prices or profits;
o Extent of effective competition likely to sustain in a market;
o Availability of substitutes before and after the combination;
o Market share of the parties to the combination individually and as a combination;
o Possibility of the combination to remove the vigorous and effective competitor or competition in the market;
o Nature and extent of vertical integration in the market;
o Nature and extent of innovation;
o Whether the benefits of the combinations outweigh the adverse impact of the combination.

Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate their harmful effects.
* The other regulations are provided in the:- The Foreign Exchange Management Act, 1999 and the Income Tax Act,1961. Besides, the Securities and Exchange Board of India (SEBI) has issued guidelines to regulate mergers and acquisitions. The SEBI (Substantial Acquisition of Shares and Take-overs) Regulations,1997 and its subsequent amendments aim at making the take-over process transparent, and also protect the interests of minority shareholders.

Joint Ventures

A joint venture is a new enterprise owned by two or more participants. It represents a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration. It is essentially a medium to long-term contract which is specific and flexible. Though, the joint venture represents a newly created business enterprise, its participants continue to exist as separate firms. A joint venture can be organized as a partnership firm, a corporation or any other form of business organisation which the participating firms choose to select. It generally has the following characteristics:-

* Contribution by partners of money, property, effort, knowledge, skill or other assets to the common undertaking.
* Joint property interest in the subject matter of the venture.
* Right of mutual control or management of the enterprise.
* Right to share in the property.

Thus, joint ventures are of limited scope and duration. They involve only a small fraction of each participant's total activities. Each partner must have something unique and important to offer the venture and simultaneously provide a source of gain to the other participants. However, the participants' competitive relationship need not be affected by the joint venture arrangement.

Benefits of a Joint Venture

Joint ventures perform a useful role in assisting companies in the process of restructuring. It can enable a firm to achieve market penetration into new areas overtime, enter and develop new product markets, expand into new geographic areas and participate in new technology driven value activities. They can also be used by smaller firms protectively as an element of long-range strategic planning. Thus, a small firm in a highly concentrated industry can negotiate joint ventures with several of the industry's dominant firms to form a self-protective network of counterbalancing forces. Joint ventures are formed with several motives:-

* The main motive is to share the risks. It reduces the risks in a number of ways as the activities can be expanded with smaller investment outlays than if financed independently.
* The expressed purpose of most of the joint ventures is knowledge acquisition. The complexity of the knowledge to be transferred is a key factor in determining the contractual relationship between the partners. One or more participants may seek to learn more about a relatively new product market activity. This might concern all aspects of the activity or a limited segment like R&D, production, marketing or product servicing.
* A small firm with a new product idea that involves high risk and requires relatively large amounts of investment capital may form a joint venture with a large firm. The larger firm might be able to carry the financial risks and be interested in becoming involved in a new business activity that promises growth and profitability. In addition, the larger firm might thereby gain experience in the new area of activity that may represent the opportunity for a major new business thrust in the future.
* Tax advantages are a significant factor in many joint ventures.
* It also helps in expanding the firm's operations into foreign countries. The local partners contribute in the form of specialised knowledge about local conditions, which are essential to the success of the venture.

A joint venture may be subjected to several difficulties. As circumstances change, the contract might be too inflexible to permit the required adjustments to be made. The basic reasons for failure of a joint venture are:-

* Inadequate preplanning for the joint venture.
* The hoped-for technology never developed.
* Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture.
* People with expertise in one company refused to share knowledge with their counterparts in the joint venture.
* Parent companies are unable to share control or compromise on difficult issues.

A successful joint venture needs to fulfil the following requirements:-

* Each participant has something of value to bring to the venture.
* The participants should engage in careful preplanning.
* The agreement or contract should provide for flexibility in the future.
* There should be provision in the agreement for termination including buyout by one of the participants.
* Key executives must be assigned to implement the joint ventures.
* A distinct unit be created in the organisational structure which has the authority for negotiating and making decisions.

Joint Ventures by Foreign Companies

A foreign company can invest in an Indian company through a joint venture agreement (or as a wholly owned subsidiary) in the areas which are otherwise not reserved exclusively for the public sector or which are not under the prohibited categories such as real estate, insurance, agriculture and plantation. Foreign investment into India is governed by the Foreign Direct Investment (FDI) policy and the Foreign Exchange Management Act, 1999 (FEMA). The Government has set up a Indian Investment Centre in the Ministry of Finance as a single window agency for authentic information or any assistance that may be required for investments, technical collaborations and joint ventures. It advises foreign investors on setting up industrial projects in India by providing information regarding investment environment and opportunities, the Government industrial and foreign investment policies, taxation laws and facilities and incentives and also assists them in identifying collaborators in India.

For such foreign investments into India, a two tier approval mechanism has been provided:-

* Automatic Approval Route:- FDI in sectors or activities to the extent permitted under automatic route does not require any prior approval either by Government of India or Reserve Bank of India (RBI). The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.
* Foreign Investment Promotion Board (FIPB) Approval Route:- FDI in activities not covered under the automatic approval route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB).The FIPB has been set up in the Ministry of Finance to promote inflows of FDI into the country, as also to provide appropriate institutional arrangements, transparent procedures and guidelines for investment promotion and to consider and approve/recommend proposals for foreign investment.

Approvals of composite proposals involving foreign investment or foreign technical collaboration are also granted on the recommendations of the FIPB. The companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The proposals to FIPB shall contain the following information:-
o Whether the applicant has any existing financial or technical collaboration or trade mark agreement in India in the same field for which approval has been sought; and
o If so, details thereof and the justification for proposing the new venture or technical collaboration;
o Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing;
o Foreign investment proposals received in the Department of Economic Affairs are generally placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt.

Also, the Secretariat for Industrial Assistance (SIA) has been set up by the Government of India in the Ministry of Commerce & Industry to provide a single window service for entrepreneurial assistance, investor facilitation and receiving and processing all applications which require Government approval. It also notifies all Government Policy decisions relating to investment and technology and collects monthly production data for select industry groups.

Overseas Business Opportunities

Overseas business by a company refers to undertaking and expanding its commercial activities across the national borders. It encompasses diverse nature of activities like trading (exporting and importing its goods and services); manufacturing and marketing as well as outsourcing for production and marketing. The main reason for making such overseas investments is to explore business opportunities abroad and take advantage of such opportunities. Foreign markets in both developed and developing countries provide enormous growth opportunities. For example, a number of Indian pharmaceuticals firms have achieved a much faster growth of their overseas business. The various other reasons for investing abroad are:-

* Competition is the main driving force behind internationalism. Until liberalisation in 1991, the Indian economy was a highly protected market. Not only that the domestic producers were protected from foreign competition, but also domestic competition was restricted by several policy induced entry barriers. The economic liberalisation and globalisation has ushered in increased competition both domestically and internationally.


* Government policies and regulations also motivate internationalism. Many Governments offer a number of incentives and other positive support in order to encourage foreign investments. Restrictive domestic Government policies which limit the scope of business expansion in domestic country and undermines their competitiveness is also an important factor for entering overseas markets.

* Domestic demand constraints drive many companies to expand their markets beyond the national borders. If the domestic market potential is fully tapped, the market for such products tends to be saturated. Another type of domestic market constraint arises from the scale-economies. The technological advances has increased the size of optimal scale of operations in many industries, thus making it necessary to have foreign markets in addition to domestic ones. Domestic recession often provokes the companies to explore foreign markets.

* It may also help the company to improve its domestic business, increase its market share and help establish the image of the company.

Business strategy relating to overseas investment differs from that of domestic investment due to the differences in business environment:-

* The political environment includes the characteristics and policies of the political parties, nature of the constitution and the governmental system. These factors vary considerably between different nations.


* The legal system that exists in different countries across the world may be classified into common law, civil law or code law and theocratic law. Common law is based on tradition, past practices and legal precedents set by the courts through interpretation of statutes, legal legislations and past rulings. Code law, on the other hand, is based on an all-inclusive system of written rules of law. While the theocratic law is based on religious precepts. These differences in the legal framework play a very important role in overseas investment strategy.


* Cultural differences are one of the most important factors influencing international investments. The cultural or social environment of any country encompasses language, religion, customs, traditions and beliefs, tastes and preferences, social stratification, social institutions,etc.

* Economic environment also varies from country to country. It broadly includes the nature and level of development of the economy, economic resources, size of the economy, economic systems and economic policies, economic conditions,trends in various economic indicators like national income, per capita income, foreign trade, inflation rate, industry production, etc.

However, a firm which plans to invest abroad has to make a series of strategic decisions:-

* The first decision a company has to make is whether to expand its business abroad or not. This decision is based on consideration of number of important factors like:-

o Present and future opportunities

o Present and future market opportunities

o The resources of the company like skill,experience, financial support, production and marketing capabilities,etc.


o Company's objectives.

* Once the company has decided to invest abroad, the next important decision is the selection of the most appropriate market. For this, a thorough analysis of the potentials of the various overseas markets and their respective marketing environment is essential.

* The next important decision relates to determining the appropriate modes of entering those foreign markets. The important foreign market entry strategies are:-

o Exporting: is the most traditional mode of entering a foreign market. It is an appropriate strategy when any of the following conditions prevail:- (i) the volume of foreign business is not large enough to justify production in the foreign market; (ii) cost of production in the foreign market is high; (iii) the foreign market is characterised by production bottlenecks like infrastructural problems, problems with materials supplies, etc; (iv) there are political or other risks of investment in the foreign country; (v) the company has no permanent interest in the foreign market concerned or that there is no guarantee of the market available for a long period; (vi) foreign investment is not favoured by the foreign country concerned; (vii) licensing or contract manufacturing is not a better alternative.

o Licensing and Franchising:- are easy ways of entering the foreign markets. Under international licensing, a firm in one country (the licensor) permits a firm in another country (the licensee) to use its intellectual property (such as patents, trade marks, copyrights, technology, technical know-how, marketing skill or some other specific skill). The monetary benefit to the licensor is the royalty or fees which the licensee pays.

Franchising is a form of licensing in which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a prescribed manner. This right can take the form of selling the franchiser's products, using its name, production and marketing techniques, or general business approach. One of the common forms of franchising involves the franchiser supplying an important ingredient for the finished product, like the Coca Cola supplying the syrup to the bottlers.

o Management Contracting:- is one in which the supplier brings together a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership. It enables a firm to commercialise existing know-how that has been built up with significant investments and frequently the impact of fluctuations in business volumes can be reduced by making use of experienced personnel who otherwise would have to be laid off. Under it the firm providing the management know-how may not have any equity stake in the enterprise being managed.

o Turnkey Contracts:- are common in international business in the supply,erection and commissioning of plants like in the case of oil refineries, steel mills, cement and fertilizer plants, etc. A turnkey operation is an agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer's personnel, who will be trained by the seller.

o Fully Owned Manufacturing Facilities:- Companies with long term and substantial interest in the foreign market normally establish wholly owned manufacturing facilities there. It provides the firm with complete control over production and quality. It does not have the risk of developing potential competitors as in the case of licensing and contract manufacturing.

o Assembly Operations:- A manufacturer who wants to take advantages that are associated with overseas manufacturing facilities and yet does not want to go that far may establish overseas assembly facilities in selected markets. It represents a cross between exporting and overseas manufacturing. It is an ideal strategy when there are economies of scale in the manufacture of parts and components and when assembly operations are labour-intensive and labour is cheap in the foreign country.

o Joint ventures:- is a very common strategy of entering the foreign market. It represents a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration. It generally has the following characteristics:- (i) contribution by partners of money, property, effort, knowledge, skill or other assets to the common undertaking; (ii) joint property interest in the subject matter of the venture; (iii) right of mutual control or management of the enterprise; (iv) right to share in the property.



o Mergers and Acquisitions:- have been a very important market entry strategy as well as expansion strategy for maximisation of a company's growth by enhancing its production and marketing operations. They are being used in a wide array of fields such as information technology, telecommunications, and business process outsourcing as well as in traditional businesses in order to gain strength, expand the customer base, cut competition or enter into a new market or product segment.


o Strategic Alliance:- has been becoming more and more popular in international business. This strategy seeks to enhance the long term competitive advantage of the firm by forming alliance with its competitors, existing or potential in critical areas, instead of competing with each other. It helps a company to leverage critical capabilities, increase the flow of innovation and increase flexibility in responding to market and technological changes.

o Countertrade:- has been successfully used by a number of companies as an entry strategy. It is a form of international trade in which certain export and import transactions are directly linked with each other and in which import of goods are paid for by export of goods, instead of money payments. Its main attraction is that it can give a firm a way to finance an export deal when other means are not available. For example, Pepsico gained entry to the USSR by employing this strategy.

* Decision regarding the nature of the organisational structure of the company internationally.This will depend on number of factors like:- Company's international orientation; nature of business; size of business; its future plans,etc.

* Designing a suitable marketing mix- production,promotion, price and physical distribution, so as to adopt to the characteristics of overseas markets.

Hence, a firm typically passes through different stages in its transition from local firm to a transnational firm. That is, a firm which is entirely domestic in its activities normally passes through different stages of internationalisation before it becomes a truly global one. A firm may start exporting its products on an experimental basis and if the results are satisfying, it would enlarge its international operations and in due course it would establishes its offices,branches or subsidiaries or joint ventures abroad. This expansionary process may also be characterised by increasing the product mix and the number of market segments and the number of countries of operation. Thus, the company becomes multinational or global. In other words, for many firms overseas business initially starts with a low degree of commitment and involvement, and gradually develops into a global business organisation.

Financial Support by Banks

Export-Import Bank of India (EXIM) Bank has been playing a unique role in supporting Indian direct investment abroad since its inception. It acts as a nodal agency for financing the overseas investments by Indian firms. It has been facilitating Indian corporates’ access to new markets and technologies, and thereby enhancing their international competitiveness. It offers financial assistance to Indian companies to enable them to establish their products in overseas markets.

EXIM Bank was established as a wholly Government-owned financial institution, under the Export-Import Bank of India Act, 1981, by relocating International Finance Division of Industrial Development Bank of India (IDBI), which had first initiated a program of rupee term loans to Indian companies towards their equity contribution in overseas ventures. Since then, EXIM Bank has been involved in supporting Indian direct investment overseas and has developed its financing programme further and enlarged its scope from time to time:-

* It offers a range of fund and non-fund based support to enhance the export competitiveness of Indian companies.


* Its major operations comprise financing projects, products and services exports, building export competitiveness, promotional programmes and financing research and development activities of exporting companies.


* It provides information, advisory and support services to enable exporters to evaluate international risks, exploit export opportunities and improve their competitiveness.


* It assists Indian companies in identifying technology suppliers, partners and in consummation of domestic and overseas joint ventures.


* It also provides market driven export-financing solutions for small and medium sized Indian exporters.

The bank has launched a 'Overseas Investment Finance (OIF)' programme which seeks to cover the entire cycle of Indian investment overseas including the financing requirements of Indian Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) with the help of the following financing instruments:-

* Loan against investment in share capital.


* Loan against Indian promoter company’s loan.


* Loans to Overseas Indian Ventures.

* Non-fund based facilities to Indian Overseas Ventures.

* Finance for direct equity Investment.


* Direct Finance,that is, the term and working capital to the overseas ventures.

* Finance for equity or debt component for acquisition of overseas businesses or companies including leveraged buy-outs including structured financing options.

Many other banks provide the necessary financial support for overseas investment. For example, State Bank of India (SBI). It's International Banking Group delivers the full range of cross-border finance solutions through its four divisions:- (i) the Domestic division; (ii) the Foreign Offices division; (iii) the Foreign Department; and (iv) the International Services division. The bank has a network of 66 offices/branches in 29 countries. It's offshore joint ventures and subsidiaries enhance its global stature.

Its Trade finance facilities include:-

* Rupee Export Credit (Pre-Shipment and Post-Shipment)

o Pre-Shipment Export Credit


o Post-Shipment Export Credit


o Pre-Shipment Credit in Foreign Currency (PCFC)

o Getting Started - Opening a PCFC

o Operating PCFC


o Export Bill Rediscounting


o Letter of Credit

* Foreign Currency import credit

o Supplier's credit

SBI's Merchant Banking Group specialize in the arrangement of various forms of Foreign Currency Credits for Corporates through:-

* Commercial loans


* Syndicated loans


* Lines of Credit from Foreign Banks and Financial Institutions


* FCNR loans

* Loans from Export Credit Agencies

* Financing of Imports.

Sources of Overseas Investment

Under the Foreign Exchange Management Act (FEMA) and the various notifications issued by the Reserve Bank of India under it, the investments in overseas JVs/WOSs may be funded out of one or more of the following sources:-

* Drawal of foreign exchange from an authorised dealer in India upto the extent of 100 percent of the Indian party's net worth as on the date of last audited balance sheet. Under Foreign Exchange Management Act (FEMA), the Reserve Bank may authorise any person to be known as an authorised person, to deal in foreign exchange as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit.

Classification of Persons Authorised to deal in the foreign exchange
Sr. No. Present category Entities Revised category Major Activities
1. Authorised Dealer
o Commercial Banks


o State Co-op Banks


o Urban Co-op Banks
Authorised Dealer - Category - I All current and capital account transactions according to RBI directions issued from time-to-time.
2. Authorised Dealer
o Upgraded FFMCs


o Co-op. Banks


o Regional Rural Banks (RRBs)


o Others
Authorised Dealer - Category - II Specified non-trade related current account transactions as at paragraph 3 below as also all the activities permitted to Full Fledged Money Changers. Any other activity as decided by the Reserve Bank.
3. Authorised Dealer
o Select Financial and other Institutions
Authorised Dealer - Category - III Transactions incidental to the foreign exchange activities undertaken by these institutions.
4. Full Fledged Money Changers (FFMCs)
o Dept. of Posts


o Urban Co-op. Banks


o Other FFMCs
FFMCs Purchase of foreign exchange and sale for private and business visits abroad.
Source: Reserve Bank of India


* Capitalisation of exports and other dues. Indian parties are permitted to capitalise:- (i) the payments due from the foreign entity towards exports made to it, fees, royalties; or (ii) any other entitlements due from the foreign entity for supplying technical know-how, consultancy, managerial and other services within the ceilings applicable. But, the export proceeds remaining unrealised beyond a period of six months from the date of export will require the prior approval of Reserve Bank before capitalisation.

Also, the Indian software exporters are permitted to receive 25 per cent of the value of their exports to an overseas software company in the form of shares without entering into Joint Venture Agreements, with the approval of the Reserve Bank.
* Share swap, which refers to the acquisition of the shares of an overseas entity by way of exchange of the shares of the Indian entity. Under this, Indian companies can automatically swap their fresh issue of American Depository Receipts (ADRs)/Global Depository Receipts (GDRs) for overseas acquisitions in the same core activity in accordance with the scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme 1993 and the guidelines issued thereunder from time to time by the Central Government, subjected to compliance with the following conditions:-

o ADRs/GDRs are listed on any stock exchange outside India;


o Such investment by the Indian Party does not exceed the higher of the following amounts, namely:- (i) amount equivalent of USD 100 mn.; or (ii) amount equivalent to 10 times the export earnings of the Indian Party during the preceding financial year as reflected in its audited financial statements.


o The ADR and/or GDR issue for the purpose of acquisition is backed by underlying fresh
equity shares issued by the Indian Party;


o The total holding in the Indian entity by persons resident outside India in the expanded capital base, after the new ADR and/or GDR issue, does not exceed the sectoral cap prescribed under the relevant regulations for such investment;


o Valuation of the shares of the foreign company shall be:- (i) as per the recommendations of the Investment Banker if the shares are not listed on any stock exchange; or (ii) based on the current market capitalization of the foreign company arrived at on the basis of monthly average price on any stock exchange abroad for the three months preceding the month in which the acquisition is committed and over and above, the premium, if any, as recommended by the Investment Banker in its due diligence report in other cases.

The Indian party is required to report such acquisition in Form ODG to the Reserve Bank within a period of 30 days from the date of the transaction.
* External commercial Borrowings (ECB)/Foreign Currency Convertible Bonds(FCCBs) raised abroad. External Commercial Borrowings (ECBs) means borrowings in foreign exchange by a resident Indian, a firm, a bank or a company incorporated under the Indian Companies Act. It essentially includes:-

o Credit extended by foreign banks.


o Credit extended by foreign financial institutions.


o Credit extended by overseas corporate bodies (OCBs).


o Loans for imports, advances against exports, advances from overseas export credit agencies.

o Floating rate notes (FRN) and bonds.


o Credit extended by individuals abroad including Non Resident Indians (NRIs).

The Government has formulated policies and procedures governing each of the above categories. ECBs were first permitted by the Government in 1999 as a source of finance for Indian entities or individuals for setting up new projects (known as green field projects), expansion of existing business, infrastructure projects and fresh investment in general. Policy on ECBs is framed by the Government of India in consultation with RBI. Government has been liberalising ECB procedures in order to enable Indian corporates , to have greater access to international financial markets. It has empowered Reserve Bank of India to give ECB approvals in accordance with the guidelines brought out by the RBI. Under the policy, ECBs can be accessed under two routes, namely :-
o Automatic route:- ECBs for investment in the real sector is under the Automatic Route i.e. will not require RBI or Government approval.


o Approval route:- All cases which fall outside the purview of the automatic route, will be decided by an Empowered Committee set up by RBI. In case of doubt as regards eligibility to access Automatic Route , applicants may take recourse to the Approval Route .

The banks in India offering ECBs are:-
o Bank of Baroda


o State Bank of India (SBI)


o Indian Overseas bank


o Canara Bank

Foreign Currency Convertible Bonds(FCCBs) can be issued by Indian companies in the overseas market in accordance with Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993. The FCCB issue needs to conform to External Commercial Borrowing guidelines, issued by Reserve Bank vide Notification No. FEMA 3/2000-RB dated May 3, 2000, as amended from time to time.
* Exchange Earner's Foreign Currency(EEFC) account of the Indian party. EEFC account means an account expressed in foreign currency and maintained with an authorised dealer (a bank dealing in foreign exchange) in India to credit prescribed percentage of earnings in convertible foreign currency. A person resident in India such as individuals, firms, companies, etc.,may open such an account. The permissible credits into this account are:-

o Inward remittance through normal banking channel, other than remittances received on account of foreign currency loan or investment received from abroad or received for meeting specific obligations by the account holder.


o Payments received in foreign exchange by a 100 per cent Export Oriented Unit or a unit in (a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware Technology Park for supply of goods to similar such unit or to a unit in Domestic Tariff Area.


o Payments received in foreign exchange by a unit in Domestic tariff Area for supply of goods to a unit in Special Economic Zone (SEZ).


o Payment received by an exporter from an account maintained with an authorised dealer for the purpose of counter trade. (Counter trade is an arrangement involving adjustment of value of goods imported into India against value of goods exported from India in terms of Reserve Bank guidelines).

o Advance remittance received by an exporter towards export of goods or services.


o Payment received for export of goods and services from India, out of funds representing repayment of State Credit in U.S. dollar held in the account of Bank for Foreign Economic Affairs, Moscow, with an authorised dealer in India.


o Professional earnings including directors fees, consultancy fees, lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity.


o Interest earned, if any, on the funds held in the account.


o Re-credit of unutilised foreign currency earlier withdrawn from the account.


o Amount representing repayment by the account holder's importer customer, of loan/advances granted, by the exporter holding such account.

* Indian companies are allowed to raise capital in the international market through the issue of American Depository Receipts (ADRs)/Global Depository Receipts (GDRs). They can issue ADRs/GDRs without obtaining prior approval from the Reserve Bank of India if they are eligible to issue ADRs/GDRs in terms of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and subsequent guidelines issued by Ministry of Finance, Government of India:-

o Amendment to the "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993.


o Guidelines For Overseas Business Acquisition By Indian Software Companies Through ADR/GDR Realisations/Stock Swap.


o Guidelines For ADR/GDR Issues By The Indian Companies Dated The 19 th January, 2000


o Guidelines for overseas business acquisition by Indian Companies through ADR/GDR stock swap - expansion in the scope of eligibility dated 17th April 2001

These instruments are issued by a Depository abroad and listed in the overseas stock exchanges. The proceeds so raised have to be kept abroad till actually required in India. After the issue of ADRs/GDRs, the company has to file a return in the proforma given in Annexure 'C' to the Reserve Bank Notification No.FEMA.20/ 2000-RB dated May 3, 2000. The company is also required to file a quarterly return in a form specified in Annexure'D' of the same regulation. There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.