JV/WOS

A. Resident corporate entities and partnership firms registered under the Indian Partnership Act, 1932 (Indian Party) are eligible to make direct investment abroad in JVs/ WOSs.

A. No. An eligible entity is free to acquire either a partial stake (JV) or the entire equity (WOS) in an already existing company, provided the valuation is as per the laid down norms.

A. An Indian Party can make overseas direct investment in any bonafide activity (except those that are specifically prohibited). However, for undertaking activities in the financial sector, certain additional conditions specified in Regulation 7 should be adhered to.

A. Real estate and Banking are the prohibited sectors for overseas direct investment. However, Indian banks operating in India can set up JVs/WOSs abroad provided they obtain clearance under the Banking Regulation Act 1949, from DBOD, RBI, CO.

A. Real estate business means buying and selling of real estate or trading in transferable development rights (TDRs) but does not include development of township, construction of residential/commercial premises, roads and bridges.

A. Broadly there are two schemes under which an Indian Party can set up a JV/WOS abroad, namely the Automatic Route and the Normal Route.

A. Under the Automatic Route, an Indian Party does not require any prior approval from the Reserve Bank for setting up a JV/WOS abroad (in case of investment in the financial sector, however, prior approval is required from the concerned regulatory authority both in India and abroad).

A. The criteria for direct investment under the Automatic Route are as under:

1. the total ‘financial commitment’ of the Indian Party in JVs/WOSs in any country other than Nepal, Bhutan and Pakistan is up to 100% of its net worth and the investment is in a lawful activity permitted by the host country;
2. the Indian Party is not on the Reserve Bank’s exporters caution list / list of defaulters to the banking system published/ circulated by the Credit Information Bureau of India Ltd. (CIBIL)/RBI or under investigation by the Enforcement Directorate or any investigative agency or regulatory authority;
3. the Indian Party routes all the transactions relating to the investment in a JV/WOS through only one branch of an authorised dealer to be designated by it.

A. Financial commitment means the amount of direct investment outside India by way of contribution to equity and loans and 50% of the amount of guarantee issued by an Indian Party to or on behalf of its overseas JV/WOS.

A. No, the networth is the overall ceiling for overseas direct investment. Any fresh overseas investment can be made only on the basis of accretion to the networth.

A. Where the investment is more than USD five million, the valuation has to be done by a Category I Merchant Banker registered with Securities and Exchange Board of India (SEBI) or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country and in all other cases by a Chartered Accountant/Certified Public Accountant. However, in the case of investment by acquisition of shares where the consideration is to be paid fully or partly by issue of the Indian Party’s shares (swap), in all cases, the valuation will have to be done by a Category I Merchant Banker registered with Securities and Exchange Board of India (SEBI) or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country.