Nri shareholder in a n.b.f.c

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Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2013 Dear Sir / Madam,

Can a NRI become a shareholder in an NBFC ?. If the answer is YES are there any regulations in place by RBI on the same. ?

Ajay Mishra

Ajay Mishra (Expert)
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25 August 2013 Hi

There is no restriction to appoint a NRI as shareholder and director. A company registered under Companies Act, 1956 is eligible to appoint NRI as director after taking DIN of such NRI.

The Reserve Bank of India had given general permission under section 29(1)(b) of the former FERA, 1973 to NRI to subscribe to the MOA of an Indian company and to take shares as a subscriber .(Notification No. FERA 143/93-RB, dated 26-4-1993 issued by RBI, Mumbai in this regard is reproduced hereunder:

“The RBI has given general permission to NRI to subscribe to the MOA/AOA of Indian Company for the purpose of Incorporation of the company subject to the condition that:-

(a) the total face value of the shares to be taken by NRI does not exceed Rs. 10,000
(b) the company is being manly formed for undertaking industrial activities
(c) the MOA of such company does not permit the company to take up any agriculture/plantation activities and to deal in real estate business other than developing real estate, and
(d) such company shall file a declaration in the prescribed form with the RBI regarding particular of such shares issued within 900days from the date of incorporation of the company.

DCA Circular dated 16-2-1995 clarifies that there can not be any restriction for incorporation of a company whether all the subscriber to the MOA/AOA/ proposed directors are residing abroad, being either foreign nationals, or NRI subject to the approval of RBI, where necessary.

The RBI may issue such a general permission also under FEMA, 1999 also. The FEMA(Permissible Capital Account Transactions) Regulations, 2000 allow persons resident outside India to invest in an issue of security by body corporate or an entity in India.

Now, it has been decided by RBI through Circular No. 36 dated 26.09.2012 that in cases, where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.

For more details go to the following link:

http://rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=7590

Ajay Mishra

Ajay Mishra (Expert)
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25 August 2013 FOREIGN DIRECT INVESTMENT IN INDIA (FDI)
Under Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No.FEMA 20/2000-RB dated May 3, 2000) the Indian Companies are allowed to raise funds from overseas investors. An Indian company which is not engaged in any activity or in manufacturing of item included the List A and List B appended may issue fresh shares subject to the condition and sectoral cap as indicated under Foreign Direct Scheme, subject to the terms and condition specified .
WHO CAN INVEST IN INDIA
There are following categories of person resident outside India who may invest in the capital of Indian Company:
1. A non-resident entity (other than citizen of Pakistan or an entity incorporated in Pakistan)
2. A citizen or entity of Bangladesh under Government Route.
3. NRI resident as well as citizen of Nepal and Bhutan on repatriation basis.
4. Erstwhile OBCs as incorporated non-resident entities.
5. An FII under the Portfolio Investment Scheme
6. SEBI registered FIIs or NRIs through a registered broker on recognized India Stock Exchange.
7. SEBI registered Foreign Venture Capital Investor (FVCI)

An FII may invest in the capital of an Indian Company under the Portfolio Investment Scheme which limits the Individual holding of an FII to 10% of the capital of the company and the aggregate limit for FII investment to 24% of the capital of the company. The aggregate limit of 24% can be increased to the sectoral cap/statutory ceiling as approved by RBI time to time.
INDIAN ENTITIES INTO WHICH FDI CAN BE MADE
There are below mentioned entity registered or incorporated under Indian law can raise funds against capital:
(i) An Indian Company
(ii) Partnership Firm
(iii) Proprietary Concern
(iv) Indian Venture Capital Undertaking(ICVF)
(v) Ventures Capital Fund (VCF)
(vi) Limited Liability Partnership (LLP)

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis.

Foreign Direct Investment in Trust other than Venture Capital Funds (VCF) is not permitted. FDI is not allowed to invest in the above mentioned entities engaged in any agricultural/plantation activity or real estate business or print media. FDI in resident entities other than those mentioned above is not permitted.

Ajay Mishra

Ajay Mishra (Expert)
Follow

25 August 2013 I will suggest you to read Master Circular on Foreign Direct Investment in India issued by RBI on July 2013, which will help you to understand the maximum limit up to which you can issued shares to NRI.

As per such Master Circular:

Eligible non-resident investors are allowed to invest on repatriation basis in (i) Rupee and Foreign currency denominated bonds issued by the IDFs set up as an Indian company and registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank of India and in (ii) Rupee denominated units issued by IDFs set up as SEBI registered domestic Mutual Funds (MFs), in accordance with the terms and conditions stipulated by the SEBI and the Reserve Bank of India from time to time.

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