Pursuant to the circular issued by the Ministry of Corporate
Affairs (MCA) on 3 August 2016, Indian companies issuing Rupee
denominated bonds overseas (Masala Bonds) under the Reserve Bank of
India's (RBI) policy on external commercial borrowings will not
be required to comply with the public issue and private placement
disclosure and listing norms under Chapter III of the Companies
Act, 2013 (Companies Act) as well as the provisions governing the
issue of secured debentures under Rule 18 of the Companies (Share
Capital and Debentures) Rules, 2014 (Debenture Rules). All other
provisions of the Companies Act will continue to apply to Masala
Bonds. Formal notification by way of amendment to the Debenture
Rules is, however, awaited.
The MCA had, on 13 November 2014 and 18 March 2015, clarified
that Chapter III of the Companies Act and Rule 18 of the Debenture
Rules will not apply to "foreign currency bonds" issued
exclusively to persons resident outside India pursuant to
regulations of the RBI.
However, Masala Bonds are Rupee denominated but settled in
foreign currency, and technically did not fall within the
definition of "foreign currency bonds". Apart from the
denomination of the bonds and some conditions specifically set out
by the RBI, Masala Bonds and foreign currency bonds are of a
similar nature, i.e., both are (i) issued by Indian companies under
the external commercial borrowing route, (ii) issued to persons
resident outside India and compliant with disclosure requirements
pursuant to laws of the foreign investor's jurisdiction, and
(iii) listed on offshore stock exchanges, if listing is
contemplated. Given the above, the prevailing market view was that
Masala Bonds would also qualify for the exemptions provided for
foreign currency bonds under the Companies Act. The clarification
issued by the MCA has settled the ambiguous position which was
affecting the marketability of Masala Bonds.
Given that Masala Bonds are governed by the regulations issued
by RBI and in order to further streamline the regime, Securities
Exchange Board of India (SEBI) also released a circular on 4 August
2016 clarifying that such foreign investment in Masala Bonds will
not be treated as investments by Foreign Portfolio Investors (FPIs)
and will not come under the purview of the SEBI (Foreign Portfolio
Investors) Regulations, 2014, as amended. Foreign investments in
Masala Bonds will be reckoned against the existing corporate debt
limit set for investment by FPIs, presently at INR 244,323 crore
and will be available on tap to the foreign investor. The
depositories were advised to put in place systems to receive data
on foreign investments in Masala Bonds on a periodic basis.
The clarifications issued by the MCA and SEBI clearly set out
that RBI will have oversight of Masala Bond investments and
simplifies compliance by Indian issuers such that they can access
alternative sources of funds from the international market.
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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