RBI/2013-14/566
A.P.
(DIR Series) Circular No. 123
April
16, 2014
Foreign
Direct Investment (FDI) in Limited Liability Partnership (LLP)
Attention
of Authorised Dealer Category - I (AD Category - I) banks is invited to
Schedule I to the Foreign Exchange Management (Transfer or Issue of Security by
a Person Resident Outside India) Regulations, 2000 (The Principal Regulations),
notified videNotification No. FEMA 20/2000-RB dated
May 3, 2000, as amended from time to time. In terms of extant
instructions, only a Company incorporated under the Companies Act, 1956 or a
Venture Capital Fund is eligible to accept FDI.
2.
It has now been decided that Limited Liability Partnership (LLP) formed and
registered under the Limited Liability Partnership Act, 2008 shall be eligible
to acceptForeign Direct Investment (FDI) subject to the conditions given in Annex I.
3. A
copy of Press Note No. 1 (2011 series) dated
May 20, 2011 issued in this regard by Department of Industrial Policy &
Promotion (DIPP), Ministry of Commerce & Industry, Government of India is
enclosed. A reference is also drawn to paragraph 3.2.5 of the Consolidated FDI
Policy Circular 1of 2013 dated April 5, 2013 issued by DIPP, in the matter.
4.
Reserve Bank has since amended the Principal Regulations through the Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident outside
India) (Third Amendment) Regulations, 2014 notified vide Notification No. FEMA. 298 /2014-RB
dated March 13, 2014 c.f. G.S.R. No.190(E) dated March 19,
2014.
5.
The instructions issued in this circular shall be effective from May 20, 2011.
However, reporting requirement of FDI in LLP shall come into force from the
date of issue of instructions by the Reserve Bank in this regard. The LLP which
have received foreign investment in terms of FIPB approval between May 20, 2011
to the date of this circular, shall comply with the reporting requirement in respect
of FDI within 30 or 60 days, as applicable, from the date of this circular.
6.
AD Category – I banks may bring the contents of this circular to the notice of
their constituents and customers concerned.
7.
The directions in this circular have been issued under Sections 10(4) and 11(1)
of Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice
to permissions / approvals, if any, required under any other law.
Yours
faithfully,
(Rudra
Narayan Kar)
Chief General Manager-in-Charge
Annex I[Annex to A. P. (DIR Series) Circular No. 123 dated April 16, 2014]Scheme for Acquisition/ Transfer by a person resident outside India of capital contribution or profit share of Limited Liability Partnerships (LLPs)
Note: Investment by way of ‘profit share’ will fall under the category of reinvestment of earnings
The
Scheme shall be called Foreign Direct Investment (FDI-LLP) in Limited Liability
Partnerships (LLPs) formed and registered under the Limited Liability
Partnership Act, 2008.
1.
Eligible Investors:
A
person resident outside India or an entity incorporated outside India shall be
eligible investor for the purpose of FDI in LLPs. However, the following
persons shall not be eligible to invest in LLPs:
(i)
a citizen/entity of Pakistan and Bangladesh or
(ii)
a SEBI registered Foreign Institutional Investor (FII) or
(iii)
a SEBI registered Foreign Venture Capital Investor (FVCI) or
(iv)
a SEBI registered Qualified Foreign Investor (QFI) or
(v)
a Foreign Portfolio Investor registered in accordance with Securities and
Exchange Board of India(Foreign Portfolio Investors) Regulations, 2014 (RFPI).
2.
Eligibility of LLP for accepting foreign Investment:
(i)
An LLP, existing or new, operating in sectors/activities where 100% FDI is
allowed under the automatic route of FDI Scheme would be eligible to receive
FDI. For ascertaining such sectors, reference shall be made to Annex-B to
Schedule 1 of Notification No. FEMA 20/ 2000-RB dated 3rd May 2000, as amended
from time to time.
(ii)
An LLP engaged in the following sectors/activities shall not be eligible to
accept FDI:
a)
Sectors eligible to accept 100% FDI under automatic route but are subject to
FDI-linked performance related conditions (for example minimum capitalisation
norms applicable to 'Non-Banking Finance Companies' or 'Development of
Townships, Housing, Built-up infrastructure and Construction-development
projects', etc.); or
b)
Sectors eligible to accept less than 100% FDI under automatic route; or
c)
Sectors eligible to accept FDI under Government Approval route; or
d)
Agricultural/plantation activity and print media; or
e)
Sectors not eligible to accept FDI i.e. any sector which is prohibited under
the extant FDI policy (Annex-A to Schedule 1 to Notification No. FEMA. 20/
2000-RB dated 3rd May 2000) as well as sectors/activities prohibited in terms
of Regulation 4(b) toNotification No. FEMA.1/ 2000-RB dated
3rd May 2000, as amended from time to time.
3.
Eligible investment:
Contribution
to the capital of a LLP would be an eligible investment under the Scheme.
4.
Entry Route:
Any
FDI in a LLP shall require prior Government/FIPB approval.
Any
form of foreign investment in an LLP, direct or indirect (regardless of nature
of ‘ownership’ or ‘control’ of an Indian Company) shall require Government/FIPB
approval.
5.
Pricing:
FDI
in an LLP either by way of capital contribution or by way of acquisition /
transfer of ‘profit shares’, would have to be more than or equal to the fair
price as worked out with any valuation norm which is internationally accepted/
adopted as per market practice (hereinafter referred to as “fair price of
capital contribution/profit share of an LLP”) and a valuation certificate to
that effect shall be issued by a Chartered Accountant or by a practicing Cost
Accountant or by an approved valuer from the panel maintained by the Central
Government.
In
case of transfer of capital contribution/profit share from a resident to a
non-resident, the transfer shall be for a consideration equal to or more than
the fair price of capital contribution/profit share of an LLP. Further, in case
of transfer of capital contribution/profit share from a non-resident to a
resident, the transfer shall be for a consideration which is less than or equal
to the fair price of the capital contribution/profit share of an LLP.
6.
Mode of payment for an eligible investor:
Payment
by an eligible investor towards capital contribution/profit share of LLPs will
be allowed only by way of cash consideration to be received -
i)
by way of inward remittance through normal banking channels; or
ii)
by debit to NRE/FCNR(B) account of the person concerned, maintained with an AD
Category - I bank.
7.
Reporting:
(i)
LLPs shall report to the Regional Office concerned of the Reserve Bank, the
details of the receipt of the amount of consideration for capital contribution
and profit shares in Form FOREIGN DIRECT INVESTMENT-LLP(I) as given in Annex II, together with a
copy/ies of the FIRC/s evidencing the receipt of the remittance along with the
KYC report on the non-resident investor in Annex IV, through an AD
Category – I bank, and valuation certificate (as per paragraph 5 above) as
regards pricing at the earliest but not later than 30 days from the date of
receipt of the amount of consideration. The report would be acknowledged by the
Regional Office concerned, which would allot a Unique Identification Number
(UIN) for the amount reported.
(ii)
The AD Category – I bank in India, receiving the remittance should obtain a KYC
report in respect of the foreign investor from the overseas bank remitting the
amount.
(iii)
Disinvestment / transfer of capital contribution or profit share between a
resident and a non-resident (or vice versa) shall require to be reported within
60 days from the date of receipt of funds in Form FOREIGN DIRECT
INVESTMENT-LLP(II) as given inAnnex III.
8.
Downstream investment:
a)
An Indian company, having foreign investment (direct or indirect, irrespective
of percentage of such foreign investment), will be permitted to make downstream
investment in an LLP only if both, the company as well as the LLP, are
operating in sectors where 100% FDI is allowed under the automatic route and
there are no FDI-linked performance related conditions. Onus shall be on the
LLP accepting investment from the Indian Company registered under the
provisions of the Companies Act, as applicable, to ensure compliance with
downstream investment requirement as stated above.
b)
An LLP with FDI under this scheme will not be eligible to make any downstream
investments in any entity in India.
9.
Other Conditions:
(i)
In case, an LLP with FDI, has a body corporate as a designated partner or
nominates an individual to act as a designated partner in accordance with the
provisions of Section 7 of the Limited Liability Partnership Act, 2008, such a
body corporate should only be a company registered in India under the provisions
of the Companies Act, as applicable and not any other body, such as an LLP or a
Trust. For such LLPs, the designated partner "resident in India", as
defined under the 'Explanation' to Section 7(1) of the Limited Liability
Partnership Act, 2008, would also have to satisfy the definition of
"person resident in India", as prescribed under Section 2(v)(i) of
the Foreign Exchange Management Act, 1999.
(ii)
The designated partners will be responsible for compliance with all the above
conditions and also liable for all penalties imposed on the LLP for their
contravention, if any.
(iii)
Conversion of a company with FDI, into an LLP, will be allowed only if the
above stipulations (except the stipulation as regards mode of payment) are met
and with the prior approval of FIPB/Government.
(iv)
LLPs shall not be permitted to avail External Commercial Borrowings (ECBs).