Circulars ease regime for overseas direct investment

In a welcome move which may facilitate streamlining of overseas investments by Indian parties, the Reserve Bank of India (RBI) issued two circulars, dated 28 March and 2 April, which amend and clarify the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004, as amended from time to time (ODI guidelines).

The circulars comprehensively deal with the regulatory regime relating to security creation in connection with overseas investments by Indian parties, in addition to relaxing the provisions relating to opening and maintaining foreign currency accounts abroad for the purposes of such overseas investments.

Security creation: Indian parties are often required to provide security on behalf of their overseas joint ventures (JV) or wholly owned subsidiaries (WOS). The circulars now specifically permit an Indian party to create a charge over its movable assets, immovable assets and financial securities under the “approval route” subject to: (a) compliance with the overall 400% net worth limit as prescribed under the ODI guidelines; and (b) procuring a “no objection certificate” (NOC) from the Indian lenders of the Indian party (or the group company) proposing to create such a charge.

Ameya Khandge (Ameya.Khndge@trilegal.com) is a partner at Trilegal in Mumbai where Abhijeet Das (Abhijeet.Das@trilegal.com) is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad and has over 140 lawyers.