SPVs permitted
under automatic route
Indian companies were not permitted to invest in joint ventures or wholly
owned subsidiaries abroad through setting up overseas special purpose
vehicles ("SPVs") without the prior approval of the RBI. The
RBI has now permitted Indian companies to set up such SPVs without their
prior approval, unless the Indian company is on the RBI's caution list
or under investigation by the Enforcement Directorate or the name of
the Indian company appears on the Defaulter's List of the RBI.
Share swap
liberalized
The RBI has vide the same circular also permitted Indian companies to
acquire foreign companies by way of a share swap under the automatic
route (i.e without seeking the prior approval of the RBI). However the
investment by the foreign company or its shareholders into the Indian
company (pursuant to the share swap) would still require the prior approval
of the Foreign Investment Promotion Board of the Ministry of Commerce
and Industry of the Government of India.
Investment
by partnership firms under automatic route
Partnership firms, which are registered as per the provisions of the
Indian Partnership Act, 1932, having a good track record are now permitted
to make direct investments outside India in a foreign entity up to the
extent of 100% of the net worth of the firm or USD 10 million whichever
is less, over a period of one financial year.
Down-line
subsidiaries allowed
Any Indian company holding 50% or more of the shares of a foreign company,
intending to diversify its business or set up a down line subsidiary
or alter the shareholding pattern of the foreign company, is now permitted
to do so under the automatic route. Earlier these activities required
the prior approval of the RBI. However the remittances to be made by
the Indian company for the purposes of such activities should not exceed
the stipulated limits under the provisions of the Foreign Exchange Management
(Transfer or Issue of Foreign Security) Regulations, 2000 ("ODI Regulations").
Transfer of
shareholding in foreign companies liberalized
Indian companies are now permitted to transfer their shares in a foreign
company to another Indian resident (provided the transferee complies
with the conditions mentioned in the ODI Regulations) or to a foreign
party, provided the sale is in compliance with the conditions prescribed
by the RBI which includes a condition that the foreign company (the
shares of which are being sold) must be in operation for at least a
year prior to the date of the sale of the shares.
