FAQ's on Accounting / Audit and Taxation:
What are the services
provided by you in the field of accounting?
Accounting:
• Preparation of accounts manual
• Accounts Receivables
• Accounts Payables
• Reconciliation
• Preparation of Financial statements
• System set up
• Cost Accounting
• MIS Reports
What are the various audits that you
can conduct for our client?
Audits:
• Statutory Audit
• Tax Audit
• Management and Operational Audit
• Bank Audit
• Stock Audit
• Transfer Pricing
• Consolidation of Holding and Subsidiary
Companies
What aspects of taxation do you deal
with?
Taxation:
• Income Tax
• Value Added Tax (VAT)
• Service Tax
• Compliances
Tell us something on how would you help
an overseas client in the field of accounting,
if they were to outsource their accounting job
to your company?
Business Processing
Outsourcing:
• Preparation of Management Accounts and
Interpretations
• System Setup and Accounts Manual
• Payroll Processing
• Bank and Account Reconciliation
• Invoice creation and Processing
• Accounting of Fixed Assets
• Stock Records
• Accounts Receivables
• Accounts Payables
• Cost Accounting
• Preparation of Annual Budget
• Tax Returns
• E-TDS
• MIS Reports
What financial services does your company
provide to its clients?
Financial Services:
• Project Report
• Working Capital Management
• Budgetary Control
• Fund flow Statements
Top
FAQs on Foreign Direct Investment:
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 office of a foreign entity through
• Liaison Office / Representative Office
• Project Office
• Branch Office
Such offices can undertake activities permitted
under the Foreign Exchange Management (Establishment
in India of Branch Office or 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?
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:
i) where provisions of Press Note 1 (2005 Series)
issued by the Government of India are attracted.
ii) where more than 24% foreign equity is proposed
to be inducted for manufacture of items reserved
for the Small Scale sector.
iii) FDI in sectors/activities to the extent permitted
under Automatic Route does not require any prior
approval either by the Government or the Reserve
Bank of India.
iv) The investors are only required to notify
the Regional Office concerned of the Reserve Bank
of India within 30 days of receipt of inward remittances
and file the required documents along with form
FC-GPR with that Office within 30 days of issue
of shares to the non-resident investors.
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, which can be downloaded
from http://www.dipp.gov.in.
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 the Reserve Bank of India
for receiving inward remittance and issue of shares
to the non-resident investors. The companies are
required to notify the concerned Regional Office
of the Reserve Bank of India of receipt of inward
remittances within 30 days of such receipt and
submit form FC-GPR within 30 days of issue of
shares to the non-resident investors.
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:
i) Retail Trading (except single brand product
retailing)
ii) Atomic Energy
iii) Lottery Business
iv) Gambling and Betting
v) Business of Chit Fund
vi) Nidhi Company
vii) Agricultural or plantation activities (cf
Notification No. FEMA 94/2003-RB dated June 18,
2003).
viii) Housing and Real Estate business(exceptdevelopment
of townships, construction of residential / commercial
premises, roads or bridges to the extent specified
in Notification No. FEMA 136/2005-RB dated July
19, 2005 )
ix) Trading in Transferable Development Rights
(TDRs).
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 non-resident investor, the Indian company
will report to the Regional Office of the Reserve
Bank of India, under whose jurisdiction its Registered
Office is located, containing details such as:
- Name and address of the foreign investor/s
- Date of receipt of funds and their rupee equivalent
- Name and address of the authorised dealer through
whom the funds have been received, and
- Details of the Government approval, if any.
Upon issue of shares
to non-resident investors:
• Within 30 days from the date of issue
of shares, a report in Form FC-GPR, PART A together
with the following documents should be filed with
the concerned Regional Office of the Reserve Bank
of India.
• Certificate from the Company Secretary
of the company accepting investment from persons
resident outside India certifying that;
• The company has complied with the procedure
for issue of shares as laid down under the FDI
scheme as indicated in the Notification No. FEMA
20/2000-RB dated 3rd May 2000 as amended from
time to time
• The proposal is within the sectoral policy
/ cap permissible under the automatic route of
RBI and it fulfills all the conditions laid down
for investments under the Automatic approval route
namely
a) Non-resident entity/ies (other than individuals)
to whom it has issued shares does / do not have
any existing joint venture or technology transfer
or trade mark agreement in India in the same field.
b) The company is not investing in an SSI unit
& the investment limit of 24 % has been observed/
requisite approvals have been obtained.
c) Shares have been issued on rights basis and
the shares are issued to non-residents at a price
that is not lower than that at which shares are/were
issued to residents.
OR
d) Shares issued are bonus shares.
OR
e) Shares have been issued under a scheme of merger
and amalgamation of two or more Indian companies
or reconstruction by way of demerger or otherwise
of an Indian company, duly approved by a court
in India.
• Shares have been issued in terms of SIA/FIPB
approval No. ------------------- dated --------------------
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.
What are the guidelines for transfer
of existing shares from non-residents to residents
or residents to non-residents?
Transfer from Non-Resident
to Resident:
The term ‘transfer’ is defined under
FEMA as including "sale, purchase, acquisition,
mortgage, pledge, gift, loan or any other form
of transfer of right, possession or lien".
{Section 2 (ze) of FEMA, 1999}.
The FEMA Regulations give specific permission
covering the following forms of transfer i.e.
transfer by way of sale and gift. These permissions
are discussed below:
A: Transfer by way of
sale:
A person resident outside India can freely transfer
share/convertible debenture by way of sale to
a person resident in India as under:
• Any person resident outside India (other
than NRIs/OCBs) can transfer by way of sale the
shares/convertible debentures to any person resident
outside India; subject to the condition that the
acquirer or transferee does not have any previous
venture or tie up in India in the same field or
sector.
• A non-resident Indian (NRI) or an erstwhile
Overseas Corporate Body may transfer by way of
sale, the shares/convertible debentures held by
him to another NRI only.
• Any person resident outside India may
sell share/convertible debenture acquired in accordance
with FEMA Regulations, on a recognized Stock Exchange
in India through a registered broker.
B: Transfer by way of Gift:
A person resident outside India can freely transfer
share/convertible debenture by way of gift to
a person resident in India as under:
• Any person resident outside India, (not
being a non-resident Indian or an erstwhile overseas
corporate body), can transfer by way of gift the
shares/convertible debentures to any person resident
outside India; subject to the condition that the
acquirer or transferee does not have any previous
venture or tie up in India in the same field or
sector.
• A non-resident Indian (NRI) may transfer
by way of gift, the shares/convertible debentures
held by him to another NRI only.
• Any person resident outside India may
transfer share/convertible debenture to a person
resident in India by way of gift.
Transfer from Resident to Non-Resident:
A: Transfer by way of
sale - General Permission under Regulation 10
of Notification No. FEMA 20/2000-RB dated May
3, 2000.
A person resident in India may transfer to a
person resident outside India any share/convertible
debenture of an Indian Company whose activities
fall under the Automatic Route for FDI subject
to the Sectoral Limits, by way of sale subject
to complying with pricing guidelines, documentation
and reporting requirements for such transfers,
as may be specified by the Reserve Bank of India,
from time to time.
This general permission is not available where:
• Indian Company whose shares or convertible
debentures are proposed to be transferred is in
financial service sector (financial services sector
means service rendered by banking and non-banking
companies regulated by the Reserve Bank, insurance
companies regulated by Insurance Regulatory and
Development Authority (IRDA) and other companies
regulated by any other financial regulator, as
the case may be).
• The transfer falls within the provisions
of SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997.
B: Transfer by way of
gift:
• A person resident in India can transfer
by way of gift shares to a person resident outside
India in the following ways:
• A person resident in India who proposes
to transfer to a person resident outside India
[other than erstwhile OCBs] any security, by way
of gift, shall make an application to the Central
Office of the Foreign Exchange Department, Reserve
Bank of India furnishing the following information,
namely:
• Name and address of the transferor and
the proposed transferee
• Relationship between the transferor and
the proposed transferee
• Reasons for making the gift. The gifts
are permissible up to a limit of:
(i) 5% of the paid up capital of the company per
donee, and
(ii) Amount does not exceed USD 25,000 per calendar
year for each donor. The valuation of these shares
shall be in accordance with pricing guidelines
prescribed.
What if the transfer from resident to
non-resident does not fall under the above facility?
In case the transfer does not fit into any of
the above, either the transferor (resident) or
the transferee (non-resident) can make an application
for the Reserve Bank's permission for the transfer.
The application has to be accompanied with the
following documents:
• A copy of FIPB approval (if required).
• Consent letter from transferor and transferee
clearly indicating the number of shares, name
of the investee Company and the price at which
the transfer is proposed to be effected.
• The present/post transfer shareholding
pattern of the Indian investee company showing
the equity participation by residents and non-residents
category-wise.
• Copies of the Reserve Bank of India's
approvals/acknowledged copies of FC-GPR evidencing
the existing holdings of the non-residents.
• If the sellers/transferors are NRIs /
OCBs, the copies of the Reserve Bank of India's
approvals evidencing the shares held by them on
repatriation / non-repatriation basis.
• Open Offer document filed with SEBI if
the acquisition of shares by non-resident is under
SEBI Takeover Regulations.
• Fair Valuation Certificate from Chartered
Accountant indicating the value of shares as per
the following guideline.
• In the case of unlisted shares the fair
value is worked out as per the erstwhile Controller
of Capital Issue/s.
• For listed shares, the price worked out
is not less than the higher of average weekly
high and low quotations for 6 months and average
of daily high and low quotation or two weeks preceding
30 days prior to the date of making application
to FIPB.
Are the investments and profits earned
in India repatriable?
• All foreign investments are freely repatriable
except for the cases where NRIs choose to invest
specifically under non-repatriable schemes. Dividends
declared on foreign investments can be remitted
freely through an Authorised Dealer.
What are the guidelines on issue and
valuation of shares in case of existing companies?
• Allotment of shares on preferential basis
shall be as per the requirements of the Companies
Act, 1956, which will require special resolution
in case of a public limited company.
• In case of listed companies, valuation
shall be as per the Reserve Bank of India /SEBI
guidelines as follows:
• The issue price shall be either at:
i) The average of the weekly high and low of the
closing prices of the related shares quoted on
the stock exchange during the six months preceding
the relevant date or
ii) The average of the weekly high and low of
the closing prices of the related shares quoted
on the stock exchange during the two weeks preceding
the relevant date.
• In case of unlisted companies, valuation
shall be done in accordance with the guidelines
issued by the erstwhile Controller of Capital
Issues.
What are the regulations pertaining to
issue of ADRs/GDRs by Indian companies?
• Indian companies are allowed to raise
capital in the international market through the
issue of ADRs/GDRs. They can issue ADRs/GDRs without
obtaining prior approval from RBI if it is eligible
to issue ADRs/GDRs in terms of the Scheme for
Issue of Foreign Currency Convertible Bonds and
Ordinary Shares (Through Depository Receipt Mechanism)
Scheme, 1993 and subsequent guidelines issued
by Ministry of Finance, Government of India.
• After the issue of ADRs/GDRs, the company
has to file a return in the proforma given in
Annexure ‘C' to the RBI Notification No.FEMA.20/
2000-RB dated May 3, 2000. The company is also
required to file a quarterly return in a form
specified in Annexure ’D' of the same regulations.
• There are no end-use restrictions on GDR/ADR
issue proceeds, except for an express ban on investment
in real estate and stock markets.
What is meant by Sponsored ADR &
Two-way fungibility Scheme of ADR/GDR?
• Sponsored ADR/GDR:
An Indian company may sponsor an issue of ADR/GDR
with an overseas depository against shares held
by its shareholders at a price to be determined
by the Lead Manager. The Operative guidelines
for the same have been issued vide A.P. (DIR Series)
Circular No.52 dated November 23, 2002.
• Two-way fungibility
Scheme: Under the limited Two-way fungibility
Scheme, a registered broker in India can purchase
shares of an Indian company on behalf of a person
resident outside India for the purpose of converting
the shares so purchased into ADRs/GDRs. The operative
guidelines for the same have been issued vide
A.P. (DIR Series) Circular No.21 dated February
13, 2002. The Scheme provides for purchase and
re-conversion of only as many shares into ADRs/GDRs
which are equal to or less than the number of
shares emerging on surrender of ADRs/GDRs which
have been actually sold in the market. Thus, it
is only a limited two-way fungibility wherein
the headroom available for fresh purchase of shares
from domestic market is restricted to the number
of converted shares sold in the domestic market
by non-resident investors. So long ADRs/GDRs are
quoted at discounts to the value of shares in
domestic market, an investor will gain by converting
the ADRs/GDRs into underlying shares and selling
them in the domestic market. In case of ADRs/GDRs
being quoted at premium, there will be demand
for reverse fungibility, i.e. purchase of shares
in domestic market for re-conversion into ADRs/GDRs.
The scheme is operationalised through the Custodians
of securities and stockbrokers under SEBI.
Can Indian companies issue Foreign Currency
Convertible Bonds (FCCBs)?
• FCCBs can be issued by Indian companies
in the overseas market in accordance with Scheme
for Issue of Foreign Currency Convertible Bonds
and Ordinary Shares (Through Depository Receipt
Mechanism) Scheme, 1993.
• The FCCB issue needs to conform to External
Commercial Borrowing guidelines, issued by RBI
vide Notification No. FEMA 3/2000-RB dated May
3, 2000 as amended from time to time.
Can I invest through Preference Shares?
What are the regulations applicable in case of
such investments?
• Foreign investment through preference
shares is treated as foreign direct investment.
Foreign investment in preference share is considered
as part of share capital and fall outside the
External Commercial Borrowing (ECB) guidelines/cap.
• Preference shares to be treated as foreign
direct equity for purpose of sectoral caps on
foreign equity, where such caps are prescribed,
provided they carry a conversion option. If the
preference shares are structured without such
conversion option, they would fall outside the
foreign direct equity cap.
Can shares be issued against Lumpsum
Fee, Royalty and ECB?
• Issue of equity shares against lump sum
fee, royalty and external commercial borrowings
(ECBs) in convertible foreign currency are permitted,
subject to meeting all applicable tax liabilities
and sector specific guidelines.
Other than issue of shares under Automatic
/Government Route, what other general permissions
are available under RBI Notification No.FEMA 20
dt.3-5-2000?
• Issue of shares under ESOP by Indian companies
to its employees or employees of its joint venture
or wholly owned subsidiary abroad who are resident
outside India directly or through a Trust up to
5% of the paid up capital of the company.
• Issue and acquisition of shares by non-residents
after merger or de-merger or amalgamation of Indian
companies.
• Issue shares or preference shares or convertible
debentures on rights basis by an Indian company
to a person resident outside India.
Can I invest in unlisted shares issued
by a company in India?
Yes. As per the regulations/guidelines
issued by the Reserve Bank of India/Government
of India, investment can be made in unlisted shares
of Indian companies.
Can a foreigner set up a partnership/proprietorship
concern in India?
No. Only NRIs/PIOs are allowed to set
up partnership/proprietorship concerns in India.
Even for NRIs/PIOs investment is allowed only
on non-repatriation basis.
Can I invest in Rights shares issued
by an Indian company at a discount?
There are no restrictions under FEMA
for investment in Rights shares at a discount,
provided the rights shares so issued are being
offered at the same price to residents and non-residents.
II - Foreign Technical Collaboration
1. What are the payment parameters for foreign
technology transfer under the Automatic Route
of Reserve Bank of India? How should royalty be
calculated?
• Payment for foreign technology collaboration
by Indian companies are allowed under the automatic
route subject to the following limits:
• Lump sum payments not exceeding US$ 2
million.
• Royalty payable being limited to 5 per
cent for domestic sales and 8 per cent for exports,
without any restriction on the duration of the
royalty payments.
• The royalty limits are net of taxes and
are calculated according to standard conditions.
• The royalty will be calculated on the
basis of the net ex-factory sale price of the
product, exclusive of excise duties, minus the
cost of the standard bought-out components and
the landed cost of imported components, irrespective
of the source of procurement, including ocean
freight, insurance, custom duties, etc.
• RBI has delegated the powers to ADs to
make payment of royalty under such agreements.
The requirement of registration of the agreement
with the Regional Office of Reserve Bank of India
has been done away with.
2. What should be done, if Automatic Route of
Reserve Bank of India for technology transfer
is not available?
• Proposals, which do not satisfy the parameters
prescribed for automatic route of RBI, require
clearance from Department of Industrial Policy
and Promotion, Ministry of Commerce and Industry,
Government of India.
III – Foreign Portfolio Investment
1. What are the regulations
regarding Portfolio Investments by Foreign Institutional
Investors (FIIs)?
• Investment by FIIs is regulated under
SEBI (FII) Regulations, 1995 and Regulation 5(2)
of FEMA Notification No.20 dated May 3, 2000.
FIIs include Asset Management Companies, Pension
Funds, Mutual Funds, and Investment Trusts as
Nominee Companies, Incorporated / Institutional
Portfolio Managers or their Power of Attorney
holders, University Funds, Endowment Foundations,
Charitable Trusts and Charitable Societies.
• SEBI acts as the nodal point in the registration
of FIIs. The Reserve Bank of India has granted
General Permission to SEBI Registered FIIs to
invest in India under the Portfolio Investment
Scheme (PIS).
• Investment by individual FIIs cannot exceed
10% of paid up capital. Investment by foreign
registered as sub accounts of FII cannot exceed
5% of paid up capital. All FIIs and their sub-accounts
taken together cannot acquire more than 24% of
the paid up capital of an Indian Company. An Indian
Company can raise the 24% ceiling to the Sectoral
Cap / Statutory Ceiling, as applicable, by passing
a resolution by its Board of Directors followed
by passing a Special Resolution to that effect
by their General Body.
2. What are the regulations
regarding Portfolio Investments by NRIs/PIOs
• Non Resident Indian (NRIs) and Persons
of Indian Origin (PIOs) can purchase/sell shares/convertible
debentures of Indian companies on Stock Exchanges
under Portfolio Investment Scheme. For this purpose,
the NRI/PIO has to apply to a designated branch
of a bank, which deals in Portfolio Investment.
All sale/purchase transactions are to be routed
through the designated branch.
• An NRI or a PIO can purchase shares up
to 5% of the paid up capital of an Indian company.
All NRIs/PIOs taken together cannot purchase more
than 10% of the paid up value of the company.
(This limit can be increased by the Indian company
to 24% by passing a General Body resolution).
• The sale proceeds of the repatriable investments
can be credited to the NRE/NRO etc. accounts of
the NRI/PIO whereas the sale proceeds of non-repatriable
investment can be credited only to NRO accounts.
• The sale of shares will be subject to
payment of applicable taxes.
IV - Investment in Government Securities and
Corporate debt
1. Can a Non-resident
Indian invest in Government Securities/Treasury
bills and Corporate debt?
Under the FEMA Regulations only NRIs and SEBI
registered FIIs are permitted to purchase Government
Securities/Treasury bills and Corporate debt.
The details are as under;
A. A Non-resident Indian can purchase,
(1) i) Government dated securities (other than
bearer securities) or treasury bills or
units of domestic mutual funds;
ii) bonds issued by a public sector undertaking(PSU)
in India;
iii) shares in Public Sector Enterprises being
disinvested by the Government of India.
(2) They can also invest, on non-repatriation
basis, in dated Government securities (other than
bearer securities), treasury bills, units of domestic
mutual funds, units of Money Market Mutual Funds
in India, or National Plan/Savings Certificates
on non-repatriation basis. The guidelines for
these schemes are framed by the concerned Government
agencies.
B. A SEBI registered Foreign Institutional Investor
may purchase, on repatriation basis, dated Government
securities/treasury bills, non-convertible debentures/bonds
issued by an Indian company and units of domestic
mutual funds either directly from the issuer of
such securities or through a registered stock
broker on a recognised stock exchange in India.
The FIIs is required to ensure that;
i) the FII allocation of its total investment
between equity and debt instruments (including
dated Government Securities and Treasury Bills
in the Indian capital market) should not exceed
the ratio of 70:30.
ii) In case the FII is set-up as a 100% debt
FII, it can invest the entire corpus in dated
Government Securities including Treasury Bills,
non-convertible debentures/bonds issued by an
Indian company subject to limits, if any, stipulated
by SEBI in this regard.
The Investment in Government Securities/Treasury
bills and Corporate debt is subject to a ceiling
decided in consultation with the Government of
India. Investment limit for the FIIs as a group
in Government securities currently is USD 3.2
Billion. The limit for investment in Corporate
debt is USD 1.5 billion. At present, the FIIs
can also invest in Innovative instruments such
as Upper Tier-II capital upto a limit of USD 500
million.
V - Foreign Venture Capital Investment
1. What are the regulations
for Foreign Venture Capital Investment?
• A SEBI registered Foreign Venture Capital
Investor with general permission from the Reserve
Bank of India can invest in a Venture Capital
Fund or an Indian Venture Capital Undertaking,
in the manner and subject to the terms and conditions
specified in Schedule 6 of RBI Notification No.
FEMA 20/2000-RB dated May 3, 2000 as amended from
time to time.
VI - Procedure for opening Branch/Project/Liaison
Office
2. How can foreign companies
open Liaison/Project/Branch office in India?
• Foreign company can set up Liaison/Branch
Offices in India after obtaining approval from
Reserve Bank of India. Reserve Bank of India has
given general permission to foreign companies
to establish Project Offices in India subject
to certain conditions.
3. What is the procedure
to be followed for obtaining Reserve Bank's approval
for opening Liaison Office/Representative Office?
• A Liaison office can carry on only liaison
activities, i.e. it can act as a channel of communication
between Head Office abroad and parties in India.
It is not allowed to undertake any business activity
in India and cannot earn any income in India.
Expenses of such offices are to be met entirely
through inward remittances of foreign exchange
from the Head Office abroad. The role of such
offices is, therefore, limited to collecting information
about possible market opportunities and providing
information about the company and its products
to the prospective Indian customers.
• The companies desirous of opening a liaison
office in India may make an application in form
FNC-1 along with the documents mentioned therein
to Foreign Investment Division, Foreign Exchange
Department, Reserve Bank of India, Central Office,
Mumbai. This form is available at www.rbi.org.in
• Permission to set up such offices is initially
granted for a period of 3 years and this may be
extended from time to time by the Regional Office
in whose jurisdiction the office is set up. Liaison/Representative
offices have to file an Activity Certificate on
annual basis from a Chartered Accountant to the
concerned Regional Office of the Reserve Bank
of India , stating that the Liaison Office has
undertaken only those activities permitted by
Reserve Bank of India.
4. What is the procedure
for setting up Project Office?
• Foreign companies are granted projects
in India by Indian entities. General Permission
has been granted by Reserve Bank of India vide
Notification No. FEMA 95/2003-RB dated July 2,
2003 to foreign companies to open Project Office/s
in India provided they have secured from an Indian
company, a contract to execute a project in India,
and
• the project is funded directly by inward
remittance from abroad; or
• the project is funded by a bilateral or
multilateral International Financing Agency; or
• the project has been cleared by an appropriate
authority; or
• a company or entity in India awarding
the contract has been granted Term Loan by a Public
Financial Institution or a bank in India for the
project.
• However, if the above criteria are not
met, or if the parent entity is established in
Pakistan, Bangladesh, Sri Lanka, Afghanistan,
Iran or China, such applications have to be forwarded
to Central Office of the Foreign Exchange Department
of the Reserve Bank at Mumbai for approval.
5. What is the procedure
for setting up Branch office?
• Reserve Bank permits companies engaged
in manufacturing and trading activities abroad
to set up Branch Offices in India for the following
purposes:
• To represent the parent company/other
foreign companies in various matters in India
e.g. acting as buying/selling agents in India
• To conduct research work in the area in
which the parent company is engaged
• To undertake export and import activities
and trading on wholesale basis
• To promote possible technical and financial
collaborations between the Indian companies and
overseas companies.
• Rendering professional or consultancy
services
• Rendering services in Information technology
and development of software in India
• Rendering technical support to the products
supplied by the parent/Group companies.
• A branch office is not allowed to carry
out manufacturing, processing activities directly/indirectly.
A Branch Office is also not allowed to undertake
Retail Trading activities of any nature in India.
Branch Offices have to submit Activity Certificate
from a Chartered Accountant on an annual basis
to the Central Office of FED. For annual remittance
of profit Branch Office may submit required documents
to an authorised dealer.
• Permission for setting up branch offices
is granted by the Reserve Bank of India. Reserve
Bank of India considers the track record of the
Applicant Company, existing trade relations with
India, the activity of the company proposing to
set up office in India as well as the financial
position of the company while scrutinising the
application.
Top
FAQ's on Asset Reconstruction:
Do the lenders need to
have a policy in relation to transfer of assets
to ARC? What are the key components of such a
policy?
The RBI guidelines to Banks/ FIs on sale of assets
to ARCs state that Banks/ FIs, which propose to
sell their financial assets to Asset Reconstruction
Company (ARC) should ensure the prudence of sale
and the said sale of assets to be in accordance
with a policy approved by the Board. The Board
shall lay down policies and guidelines covering,
the following issues,
• Financial assets to be sold;
• Norms and procedure for sale of such financial
assets;
• Valuation procedure to be followed to
ensure that the realisable value of financial
assets is reasonably estimated; and
• Delegation of powers of various functionaries
for taking decision on the sale of the financial
assets; etc.
What is the asset acquisition
and asset holding structure of ARC?
The SRFAESI Act, 2002 and the RBI guidelines provide
for acquisition of financial assets by Asset Reconstruction
Companies (ARCs) through Trusts set up exclusively
for the purpose. Accordingly, ARC would acquire
the financial assets and hold the same under the
Trust. ARC would be the Trustee and the Managing
Agent.
What are Security Receipts
(SRs)?
ARC will hold financial assets in a Fund floated
by the Trust for the benefit of investors (Qualified
Institutional Buyers - QIBs). Security Receipts
(SRs) represent undivided rights, title and interest
of the investors in the financial assets held
in the Fund floated by the Trust. SRs shall be
redeemed only out of realization from financial
assets held under the Trust and carry no fixed
returns. SRs may also be sold in the secondary
market.
How will the Security
Receipts (SRs) be treated in the books of the
subscriber? Do the subscribers need to "mark
to market" the SRs? How will ARC determine
the Net Asset Value (NAV) of the SRs and at what
intervals will the NAV be declared?
The Security Receipts (SRs) would be treated as
a non-SLR security (investments) in the books
of the subscriber Banks/ FIs as per the RBI guidelines.
In absence of a ready market, the subscribers
would need to value SRs on the basis of the Net
Asset Value (NAV) to be periodically declared
by the ARC (Arcil proposes to declare NAV at half-yearly
intervals). RBI is expected to issue guidelines
for computation of NAV.
How will the transfer
of Financial Assets (FAs) from the Bank / FI to
ARC be effected? Why is assignment of debt required?
The transfer of Financial Assets (FAs) will be
effected by way of an agreement between the Bank
/ FI and ARC. The transfer as contemplated under
the SRFAESI Act, 2002 amounts to assignment of
debt in law.
What is the stamp duty payable on transfer
of assets to ARC? Are any stamp duty concessions
available for such transfer?
As the process involves transfer/assignment of
mortgage debts and the same will attract stamp
duty as "Conveyance" on ad valorem under
the corresponding stamp laws of the states where
the mortgaged asset is located. The duty in various
states is very high ranging from 4% to 10%. In
few states concessions are available as the same
is kept under a special article as "assignment
of debt with or without underlying securities"
and is capped at maximum of Rs.1.00 lakh. These
states are Maharashtra and Gujarat. Arcil has
approached all other states for obtaining similar
concessions.
Do the lenders need to take any action
against the borrower under the SRFAESI Act, 2002
or otherwise prior to transfer to ARC?
No. Any NPA may be transferred to ARC irrespective
of the action taken by the Bank / FI under the
SRFAESI Act, 2002 or otherwise.
Do the loan documents for assets being
proposed to be transferred to ARC need to carry
any covenants to enable such transfer? Should
all future documents entered between lenders and
borrowers contain any specific covenants to enable
ease of transfer of assets to an ARC?
Any acquisition under the SRFAESI Act, 2002 does
not require any covenants in the loan documents
to enable the transfer.
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