Foreign Exchange Management (Transfer or Issue of Security b

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulations, 2009 - Insertion of Regulation 12 and amendment in Schedule 5

Notification NO. G.S.R. 851(E) [No. FEMA 202/2009-RB]

Dated 10-11-2009

In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign Exchange Management Act. 1999.(42 of 1999), the Reserve Bank of India hereby makes the following amendments in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (Notification No. FEMA 20/2000-RB dated 3rd May, 2000) namely:

1. Short Title and Commencement—

(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulations. 2009.

(ii) Save as otherwise provided in these Regulations, the provisions of these Regulations shall be deemed to have come into force with effect from the dates specified hereunder.

2. Amendment - In the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations 2000, (Notification No FEMA 20/2000-RB dated 3^rd  May, 2000) (hereinafter referred to as 'the Principal Regulations'), a new Regulation 12 shall be inserted and shall be deemed to have been inserted with effect from 11th day of July, 2008, namely :-

“12 Pledge of shares of company incorporated in India—

(i) Any person being a promoter of a company registered in India (borrowing company), which has raised external commercial borrowing, may pledge the shares of the borrowing company or that of its associate resident companies for the purpose of securing the external commercial borrowing (ECB) raised by the borrowing company:

Provided that no person shall pledge any such share unless no-objection has been obtained from a bank which is an authorised dealer.

(ii) A bank which is an authorised dealer may grant ‘no objection’ for pledge of shares under clause (i) after satisfying itself of the following:

(a) the underlying ECB is strictly in compliance with the extant ECB guidelines,

(b)the loan agreement has been signed by both the lender and the borrower,

(c) there exists a security clause in the Loan Agreement requiring the borrower to create charge on financial securities, and

(d)       the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank (Amendmment) Rules, 2009.

Provided that the ‘no objection’ may be granted by a bank which is an authorised dealer subject to the following conditions, namely: -

(a)   the period of such pledge shall be co-terminus with the maturity of the underlying external commercial borrowing;

(b)  in case of invocation of pledge, transfer shall be in accordance with the extant FDI policy and directions issued by the  Reserve Bank;

(c)   the Statutory Auditor has certified that the borrowing company will utilize/has utilised the proceeds of the external commercial borrowing for the permitted end-use/s only."

3. Amendment of Schedule 5.—In Schedule 5 of the Principal Regulations in paragraph 1, the existing provisos (i) and (ii) shall he deleted and provisos (iii) and (iv) shall be renumbered as (i) and (ii), respectively and shall be deemed to have been deleted and renumbered with effect from the 17th day of October, 2008.