Amendments in the FEM (Transfer or issue of Security by a Person Resident Outside India) Regulations

Notification No:RBI Notification No FEMA 125/2004

GSR 799(E) In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), and in partial modification of its Notification No. FEMA 20/2000-RB dated 3rd May, 2000, the Reserve Bank of India makes the following regulations to amend the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, namely:

1. Short title and commencement.-

(i) These regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fifth Amendment) Regulations, 2004.

(ii) These amendments come into effect from October 01, 2004*.

2. Amendment of the Regulations. -

(i) In paragraph 2 of Schedule 1, after Sub-paragraph (4), the following sub paragraph may be added:

"(5) An Indian company, otherwise eligible to issue shares under this Schedule may issue equity/preference shares, subject to pricing guidelines as given in paragraph 5 of this Schedule, to a person resident outside India,

(i) being a provider of technology/technical know-how, against Royalty/Lumpsum fees due for payment;

(ii) against External Commercial Borrowing (ECB) (other than import dues deemed as ECB or Trade Credit as per RBI Guidelines) :

Provided, that the foreign equity in the company after the conversion of Royalty/Lumpsum fee/ECB into equity is within the sectoral cap notified, if any.

(ii) In Paragraph 3, after the words "beyond the sectoral limits stipulated in Annexure B" the words "either directly or by conversion of ECB/Royalty/Lumpsum fee may be added.

(iii) In paragraph 8, the following explanation may be added after sub-para (ii) :

"Explanation: Conversion of Rayalty/Lumpsum fee due for payment or conversion of ECB, as given elsewhere in this Schedule, shall be treated as consideration for issue of shares within the meaning of this paragraph."

(iv) In Paragraph 9, sub-paragraph (1) (B), the following proviso maybe added:

"Provided that, in addition to above, the company shall report the conversion of ECB into equity, in ECB¬2 Return of the respective month in case of full conversion of ECB. In case of partial conversion of ECB, the converted portion shall be reported in Form FC-GPR to the concerned Regional Office of the Reserve Bank and non-converted portion in Form ECB -2."

(Shyamala Gopinath)
Dy. Governor
[No. 1/23/EM/2000-Vol. III]

Foot Note: (i) *This has been mentioned as the date on which the directions were issued to Authorised Dealers vide AP (DIR Series) Circular No. 15 dated October 1, 2004.
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