What are the forms in which business can be conducted by a foreign company in India?
A foreign company planning to set up business operations in India
has the following options :
As an incorporated entity by incorporating
a company under the Companies Act,1956 through Joint Ventures;
or Wholly Owned Subsidiaries
- As an unincorporated entity through
- Liaison Office/Representative Office, or
- Project Office, or
- Branch Office
Such offices can undertake activities permitted
under the Foreign Exchange Management (Establishment in India of
Branch Office of other place of business) Regulations, 2000.
How does a foreign company invest in India? What are
the regulations pertaining to issue of shares by Indian companies
to foreign collaborators/investors?
A) Automatic Route
FDI up to 100% is allowed under the automatic route in all activities/sectors
except the following which require prior approval of the Government:
Activities/items that require an Industrial
Proposals in which the foreign collaborator
has an existing financial / technical collaboration in India
in the 'same' field,
Proposals for acquisition of shares in
an existing Indian company in: Financial services sector and
where Securities & Exchange Board of India (Substantial
Acquisition of Shares and Takeovers ) Regulations, 1997 is attracted;
All proposals falling outside notified
sectoral policy/caps or under sectors in which FDI is not permitted.
FDI in sectors/activities to the extent permitted under automatic
route does not require any prior approval either by the Government
or 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.
B) Government Route
FDI in activities not covered under the automatic route requires
prior Government approval and are considered by the Foreign Investment
Promotion Board (FIPB), Ministry of Finance. Application can be
made in Form FC-IL; Plain paper applications carrying all relevant
details are also accepted. No fee is payable.
General permission of RBI under FEMA
Indian 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 companies are required to notify the concerned Regional office
of the RBI of receipt of inward remittances within 30 days of
such receipt and within 30 days of issue of shares to the foreign
investors or NRIs.
Which are the sectors where FDI is not allowed in India,
under the Automatic Route as well as Government Route?
FDI is prohibited under Government as well as Automatic Route
for the following sectors:
Gambling and Betting
Housing and Real Estate business
Agriculture (excluding Floriculture,
Horticulture, Development of Seeds, Animal Husbandry, Pisciculture
and Cultivation of Vegetables, Mushrooms etc. under controlled
conditions and services related to agro and allied sectors).
Plantations (Other than Tea plantations).
What should be done after investment is made under the
Automatic Route or with Government approval?
A two-stage reporting procedure has been introduced for this purpose.
On receipt of money for investment:
Within 30 days of receipt of money from
the foreign investor, the Indian company will report to the
Regional Office of RBI under whose jurisdiction its Registered
Office is located, a report containing details such as:
Name and address of the foreign investors
Date of receipt of funds and their rupee
Name and address of the authorised dealer
through whom the funds have been received, and
Details of the Government approval, if
On issue of shares to foreign investor:
Within 30 days from the date of issue
of shares, a report in Form FC-GPR together with the following
documents should be filed with the Regional Office of RBI:
Certificate from the Company Secretary
of the company accepting investment from persons resident outside
India certifying that
- All the requirements of the Companies
Act, 1956 have been complied with;
- Terms and conditions of the Government approval, if any, have
been complied with;
- The company is eligible to issue shares under these Regulations;
- The company has all original certificates issued by authorised
dealers in India evidencing receipt of amount of consideration;
Certificate from Statutory Auditors or Chartered
Accountant indicating the manner of arriving at the price of the
shares issued to the persons resident outside India.