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