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Date: 2016-05-20 Category: Not Applicable State: Union Government Country: India

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Seventh Amendment) Regulations, 2016

Issued by Reserve Bank of India · Not Applicable

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Executive Summary & Key Takeaways

Executive Summary: This notification, issued by the Reserve Bank of India, amends the Foreign Exchange Management Regulations concerning the transfer or issue of security by a person resident outside India. It introduces a new regulation, 10A, allowing deferred payment in share transfers between residents and non-residents, subject to certain conditions. The regulations are effective from the date of publication in the official Gazette, May 20, 2016. Key Points / Main Content: Deferred Payment for Share Transfers: * In share transfers between resident buyers and non-resident sellers (or vice versa), up to 25% of the total consideration can be deferred. * The deferred payment period cannot exceed 18 months from the date of the transfer agreement. Escrow/Indemnity Arrangement: * An escrow arrangement can be made for an amount not more than 25% of the total consideration, for a period not exceeding 18 months from the date of the transfer agreement. * Alternatively, if full consideration is paid, the seller may furnish an indemnity for an amount not more than 25% of the total consideration for a period not exceeding 18 months from the date of full payment. Pricing Compliance: * The total consideration paid for the shares must comply with applicable pricing guidelines. Impact Analysis: Resident Buyers and Non-Resident Sellers: * Impact: Have the option to structure share transfer deals with deferred payment terms, providing flexibility in managing funds and mitigating risks. * Action Required: Ensure that deferred payment arrangements and final pricing comply with the new regulations and applicable guidelines. Reserve Bank of India: * Impact: Responsible for overseeing and enforcing the amended regulations related to foreign exchange management. * Action Required: Monitor compliance with the new regulations and provide clarifications as needed.

Key Entities Referenced

Reserve Bank of India: The central bank of India, responsible for regulating the foreign exchange market. Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Regulations, 2000: Regulations issued by the Reserve Bank of India under the Foreign Exchange Management Act, 1999, governing the transfer or issue of security by a person resident outside India. Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Seventh Amendment Regulations, 2016: An amendment to the 2000 regulations, further modifying the rules for transfer or issue of security by a person resident outside India. Mumbai, Maharashtra: The location of the Reserve Bank of India's Central Office. Section 6: Section of the Foreign Exchange Management Act, 1999, that confers powers to make regulations concerning certain payments, dealings in foreign exchange, etc. Section 47: Section of the Foreign Exchange Management Act, 1999, that confers power to make regulations. Shekhar Bhatnagar: Chief General Manager-in-Charge at Reserve Bank of India.
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Reserve Bank of India Foreign Exchange Department Central Office Mumbai – 400 001 Notification No.FEMA.368/2016-RB May 20, 2016 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Seventh Amendment) Regulations, 2016 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 & Commencement (i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Seventh Amendment) Regulations, 2016. (ii) They shall come into force from the date of publication in the official Gazette. 2. New Regulation In the Principal Regulations, after Regulation 10, the following shall be inserted, namely:- “10A. In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, not more than twenty five per cent of the total consideration can be paid by the buyer on a deferred basis within a period not exceeding eighteen months from the date of the transfer agreement. For this purpose, if so agreed between the buyer and the seller, an escrow arrangement may be made between the buyer and the seller for an amount not more than twenty five per cent of the total consideration for a period not exceeding eighteen months from the date of the transfer agreement or if the total consideration is paid by the buyer to the seller, the seller may furnish an indemnity for an amount not more than twenty five per cent of the total consideration for a period not exceeding eighteen months from the date of the payment of the full consideration. Provided the total consideration finally paid for the shares must be compliant with the applicable pricing guidelines.” (Shekhar Bhatnagar) Chief General Manager-in- Charge Foot Note:- The Principal Regulations were published in the Official Gazette vide G.S.R. No.406 (E) dated May 8, 2000 in Part II, Section 3, sub-Section (i) and subsequently amended as under:- G.S.R.No. 158(E) dated 02.03.2001 G.S.R.No. 175(E) dated 13.03.2001 G.S.R.No. 182(E) dated 14.03.2001G.S.R.No. 4(E) dated 02.01.2002 G.S.R.No. 574(E) dated 19.08.2002 G.S.R.No. 223(E) dated 18.03.2003 G.S.R.No. 225(E) dated 18.03.2003 G.S.R.No. 558(E) dated 22.07.2003 G.S.R.No. 835(E) dated 23.10.2003 G.S.R.No. 899(E) dated 22.11.2003 G.S.R.No. 12(E) dated 07.01.2004 G.S.R.No. 278(E) dated 23.04.2004 G.S.R.No. 454(E) dated 16.07.2004 G.S.R.No. 625(E) dated 21.09.2004 G.S.R.No. 799(E) dated 08.12.2004 G.S.R.No. 201(E) dated 01.04.2005 G.S.R.No. 202(E) dated 01.04.2005 G.S.R.No. 504(E) dated 25.07.2005 G.S.R.No. 505(E) dated 25.07.2005 G.S.R.No. 513(E) dated 29.07.2005 G.S.R.No. 738(E) dated 22.12.2005 G.S.R.No. 29(E) dated 19.01.2006 G.S.R.No. 413(E) dated 11.07.2006 G.S.R.No. 712(E) dated 14.11.2007 G.S.R.No. 713(E) dated 14.11.2007 G.S.R.No. 737(E) dated 29.11.2007 G.S.R.No. 575(E) dated 05.08.2008 G.S.R.No. 896(E) dated 30.12.2008 G.S.R.No. 851(E) dated 01.12.2009 G.S.R.No. 341 (E) dated 21.04.2010 G.S.R.No. 821 (E) dated 10.11.2012 G.S.R.No. 606(E) dated 03.08.2012 G.S.R.No. 795(E) dated 30.10.2012 G.S.R.No. 796(E) dated 30.10.2012 G.S.R. 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