Reserve Bank of India (RBI) vide A.P. (DIR Series) Circular
No.31 dated September 17, 2014 has reviewed the Guidelines for
issue of shares/ convertible debentures under the automatic
As per the existing provisions, an Indian company under the
automatic route may issue shares/convertible debentures to a person
resident outside India against lump-sum technical know-how fee,
royalty External Commercial Borrowings (ECBs) (other than import
dues deemed as ECB or Trade Credit as per RBI guidelines) and
import payables of capital goods by units in Special Economic Zones
subject to certain conditions like entry route, sectoral cap,
pricing guidelines and compliance with the applicable tax laws.
Upon review of the said Guidelines, it has been decided by RBI
to permit issue of equity shares against any other funds payable by
the investee company, remittance of which does not require prior
permission of the Government of India or Reserve Bank of India
under FEMA, 1999 or any rules/ regulations framed or directions
issued thereunder, provided that:
i. The equity shares shall be issued in accordance with the
extant FDI guidelines on sectoral caps, pricing guidelines etc. as
amended by Reserve bank of India, from time to time;
Explanation: Issue of shares/convertible debentures that require
Government approval in terms of paragraph 3 of Schedule 1 of FEMA
20 or import dues deemed as ECB or trade credit or payable against
import of second hand machinery shall continue to be dealt in
accordance with extant guidelines;
ii. The issue of equity shares under this provision shall be
subject to tax laws as applicable to the funds payable and the
conversion to equity should be net of applicable taxes.
RBI in its circular has further clarified that all the other
conditions with respect to issuance of equity shares under the
automatic route and Government approval route shall remain
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