RBI Updates : Foreign Exchange Management Act 1999

Reporting under Foreign Exchange Management Act, 1999 (FEMA)

Today, a huge number of Indian entities are engaged in various transactions relating to foreign exchange which are governed by FEMA, 1999. Foreign Exchange Management Act, 1999 and the various regulations issued by the Reserve Bank of India stipulate various reporting requirements on the companies engaged in foreign exchange transactions. Every company engaged in the activity involving foreign exchange is required to do the reporting compliances within the stipulated time period. Penal provisions are applicable on the company for every late or Non-filing of returns by the Company.

While encountering various cases of late and non-filing of various returns, on the basis of explanations and evidences sought by the Reserve Bank from company in respect to the non-compliances, the Reserve Bank came across of the fact that most cases occur due to the omission and commission of Authorized Dealer bank.

It has been observed that most cases of late or non-filing relate to ECB, ODI and FDI. Therefore, Reserve Bank of India vide A.P. (DIR Series) Circular No. 76 dated 17th January, 2013 has issued strict direction to the Authorized Dealers to take necessary steps to ensure that checks and balances are incorporated in system relating to dealing with and reporting of foreign transactions so that contraventions of Provisions of FEMA, 1999 attributable to the Authorized Dealer do not occur.

Issue of equity shares under the FDI scheme allowed under the Government route

As per the extant guidelines, Indian Companies are allowed to issue equity or preference shares against Import of capital goods/ machineries/ equipments (including second-hand machineries), subject to compliance with the following conditions:

• The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export / Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the Reserve Bank;
• There is an independent valuation of the capital goods / machineries / equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports;
• The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and
• Applications complete in all respects, for conversions of import payables for capital goods into FDI being made within 180 days from the date of shipment of goods.

Reserve Bank of India Vide its A.P (DIR Series) Circular No. 74 dated 10th January, 2013 has amended the provision and has disallowed to issue equity or preference shares against import of second hand machinery. The amended provisions are given here under: Indian Companies are allowed to issue equity or preference shares against Import of capital goods/ machineries / equipments (excluding second-hand machineries), subject to compliance with the following conditions:

There is an independent valuation of the capital goods / machineries / equipments (excluding second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports; All the other conditions will remain same.

To download Circular No. 76 dated 17th-Jan-2013, Click HERE

For FEMA related queries or Professional Advice, contact:

Mr. Arun Gupta 

arun@indiacp.com
+91 9810275571
+91 11 40622276