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INVESTMENT IN REAL ESTATE THROUGH SHARES BY NON RESIDENT

DR GAURAV GUPTA FCA, FCS, LL.B (COMPANY SECRETARY) (1046 Points)

27 September 2009

DEAR ALL
I HAVE INCORPORATED AN INDIAN COMANY WITH NRI DIRECTORS AND SHARE HOLDERS WITH THE INTENTION TO BUY A PROPERTY IN GOA NOW A FOREIGN COMAPNY WANTS TO BUY 99% SHARES OF MY INDIAN COMANY AND OUT OF THAT FUNDS INDIAN COMAPNY WILL BUY THE PROPERTY, FUNDS HAVE BEEN BROUGHT IN TO INDIA NOW WHAT ARE THE REQUIREMENTS OF FEMA REGARDING THIS CAN WE UTILIZE THE FUNDS AND INVEST IN PROPERTY AND LATER INFORM THE RBI ?
PLZ REPLY ITS URGENT

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7 Replies

Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 29 September 2009

Originally posted by :CA GAURAV GUPTA ACA, ACS, LL.B, MORADABAD
"	DEAR ALL I HAVE INCORPORATED AN INDIAN COMANY WITH NRI DIRECTORS AND SHARE HOLDERS WITH THE INTENTION TO BUY A PROPERTY IN GOA NOW A FOREIGN COMAPNY WANTS TO BUY 99% SHARES OF MY INDIAN COMANY AND OUT OF THAT FUNDS INDIAN COMAPNY WILL BUY THE PROPERTY, FUNDS HAVE BEEN BROUGHT IN TO INDIA NOW WHAT ARE THE REQUIREMENTS OF FEMA REGARDING THIS CAN WE UTILIZE THE FUNDS AND INVEST IN PROPERTY AND LATER INFORM THE RBI ? PLZ REPLY ITS URGENT	"

Hi Mr. Gupta

Ref to your query its not clear wats the intention / exact nature of business of your company.wheather to devlop it or just to hold it for inverstment or any other purpose

Transfer of securities of an Indian co. to a Non Residents, regulated under FEMA/Regulation-Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Second Amendment) Regulations, 2008 - subject fullfillment of requirements of FDI guideline.

FDI is prohibited for Real Estate sector.Real Estate means buying/selling of Estates or trading in Devlopment Rights .But pressnote 2 (2005) and 2(2006) opened the door for 100 pc FDI in Automatic Route for (strictly) Construction Development projects, including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure.

Note that acquistion of property is allowed to a Non resident for permitted activities only under FDI guidelines and the Indian company need to intimate RBI within 90days from acquisition of such immovable propertry subject to fullfillment of other compliances under FDI/FEMA

But FEMA/Regulation-Foreign Exchange Management (Acquisition and transfer of Immovable Property in India) (Amendment) Regulations, 2006 prohibits a NonResident (who is not a NRI/Indian Origin) to acquire an immovable property to hold other than FDI permitted activities /above Construction project. However a NRI and Indian origin can acquire and hold such property subject to some conditions as mentioned in said regulation.

So if we assume that you had brought the Foreign Exchange for above Constuction & Devlopment purpose then-

1 Intimation to RBI to be made within 30 days of FIRC or the date you received the fund in India

2 shares should be alloted within 180 days from the date of receipt of Fund

3 FC GPR to be filed with RBi regional office within 30days from such allotment of shares

4 other compliance reports from CS & CA is required to attached along with FC GPR

Not fullfillment of either conditions is contravention of FEMA and may call for compounding where RBI asses and charge some penalty.

If not intimated, its advisable to inform / File FCGPr immediately. In genuinde case RBI may fine less or not at all looking to undue hardship on party.

But if the money brought in to India other than avove FDI / Construction Devlopment purpose then it may be a violation of FEMA.So suggested to inform RBI immediately and seek for compounding.

Note that any investments from Non Resident who is an OCB ( Oversease corporate Body of which 60% of share holders are Indians /indian Origin)- prior approval of RBI is required.

Regards

Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 29 September 2009

Originally posted by :CA GAURAV GUPTA ACA, ACS, LL.B, MORADABAD

Attached file for FDI sectorial cap with Ref to specific pressnotes.

Pls see Master circular in Foreign Direct investments in www.rbi.org.in > notification > master circulars > Foreign exchange

For regulation on Issue &Transfer of security to non Resident and acquisition of immovable property in India see www.rbi.org.in> notification > Foreign exchange > notifications

Also check pressnotes in www.dipp.nic.in

Attached File : 51 fdi text manual nov 2006.pdf downloaded: 213 times

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 30 September 2009

Dear Ashis Mahapatra Sir,

Please explain the relevance of below in your first response

"Note that any investments from Non Resident who is an OCB ( Oversease corporate Body of which 60% of share holders are Indians /indian Origin)- prior approval of RBI is required."

Thanks

Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 30 September 2009

Originally posted by :Juzer
"	Dear Ashis Mahapatra Sir, Please explain the relevance of below in your first response "Note that any investments from Non Resident who is an OCB ( Oversease corporate Body of which 60% of share holders are Indians /indian Origin)- prior approval of RBI is required." Thanks	"

Hii Juzer

Nice if you call me Ashis only

Relevant extract of Master circular for your reference

4. Eligibility for Investment in India

(i) A person⁴ resident outside India (other than a citizen of Pakistan) or an entity incorporated outside India, (other than an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy of the Government of India. A person who is a citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Scheme, with the prior approval of the FIPB.

(ii) Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty per cent by Non-Resident Indians and includes overseas trust in which not less than sixty per cent beneficial interest is held by Non-Resident Indians, directly or indirectly, but irrevocably. OCBs have been de-recognised as a class of investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under adverse notice of Reserve Bank can make fresh investments under the FDI Scheme as incorporated non-resident entities, with the prior approval of Government of India if the investment is through Government Route; and with the prior approval of Reserve Bank if the investment is through Automatic Route.

Rgards

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 01 October 2009

Dear Ashis,

Thanx for your response,

What I understand from above is;

In case of Foreign Co., who is making investment in Indian Company through FDI, if falls under the defination of OCB other than blacklisted, is require to obtain prior permission from applicable authorities.

Defination of OCB as defined under section 2(xi) of FEM (Deposit) Reg 2000 is as under;

(xi) ‘Overseas Corporate Body (OCB)’ means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty per cent by Non-resident Indians and includes overseas trust in which not less than sixty per cent beneficial interest is held by Non-resident Indians directly or indirectly but irrevocably;Defination of OCB is as under

However, in you previous post, I was confused as I have found follo;

"Note that any investments from Non Resident who is an OCB ( Oversease corporate Body of which 60% of share holders are Indians /indian Origin)- prior approval of RBI is required."

I understand, it was typo mistake and thanx for your clarification.

Regards

Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 01 October 2009

Originally posted by :Juzer

Yes juzer you are correct

I understand it shud be NRI

NRI is independently defined under Foreign Exchange Management Act (FEMA), 1999 which is based on permanent residence of an Overseas Indian who may be an Indian citizen or Person of Indian Origin i.e. foreign citizen of Indian Origin permanently settled and residing outside India for purpose of employment, profession,vocation, business or having a permanent home and family ties abroad

It not include a NR other than an Indian citizen / indian origin.

Shiv Prakash (164 Points)
Replied 29 October 2009

Hello there,

I wish to know the % of shares an NRI can hold of a non-listed company. My family membr is a NRI and he wish to invest in one comapny which is non listed indian private company. The company is doing export of raw spices like chilly, haldi etc. in gujrat. The company is also plan to go for town ship development on some of its land. Can he (NRI) become a director with 33% or more shareholding in such company.

Rgds.

Shiv