Category Archives: Government News

Full day Seminar on FEMA, Cross Border M&A and Foreign Investments

Dear Professional Colleague,

Greetings from eMinds Legal !

We are writing to you today to invite you for an upcoming full day seminar on FEMA, Foreign Investments and Cross Border Merger Regulations being organised by Corpkonnect in association with eMinds Legal, a boutique Corporate Law Firm.

28th June: Mumbai (Hotel Goldfinch) & Gurgaon (Hotel Ramada)

29th June: Bangalore (The Grand Magrath)  

Timing: 09:30 AM – 05:30 PM

Introduction:

On 7 November 2017, the Reserve Bank of India (RBI) issued Foreign Exchange Management (Transfer and Issue of Security by a Person Resident Outside India) Regulations, 2017 (New FEMA 20) to replace the Foreign Exchange Management (Transfer and Issue of Security by a Person Resident Outside India) Regulations, 2000 (Old FEMA 20) and the Foreign Exchange Management (Investments in Firms or Proprietary concern in India) Regulations, 2000 (FEMA 24).  New FEMA 20 consolidates Old FEMA 20 and FEMA 24. The New FEMA 20 eliminates several redundancies and clarifies a plethora of interpretational issues that plagued old regime.

Also this month the Reserve Bank of India (RBI) has issued two important circulars with the aim of simplifying reporting under the Foreign Exchange and Management Act, 1999 (FEMA).

Workshop Agenda:
Technical Session 1: FDI Policy – Latest Changes and Emerging Issues

  • Regulatory framework on Inbound Foreign Investments
  • Overall view of FDI Policy 2018 – Latest Changes
  • New reporting guidelines
  • Transfer of Shares & Critical Issues
  • FEMA Notification No. 20(R)/ 2017-RB – Latest Changes

Technical Session 2:

  • ODI regulations
  • Investment Routes & related regulatory framework
  • Liberalized Remittance Scheme – Latest Developments

Technical Session 3: The New FEMA Cross Border Merger Regulations

  • Background
  • Key Provisions of the new regulations
  • Provisions related to inbound merger
  • Provisions related to outbound merger
  • Hits & Misses of the new regulations
  • Challenged merging entities may face under the new framework

Technical Session 4:

  • External Commercial Borrowings (ECB) Policy
  • ECB Rationalisation and Liberalisation

Recent FPI Related Changes:

  • Latest change in the legal framework of FPI in debt securities
  • FPI Investments – Strict Compliance for Listed entities

Workshop Experts in Mumbai

  • Jay Gandhi – Partner, Shardul Amarchand Mangaldas
  • Anish Mashruwala – Partner, J. Sagar Associates
  • Rajesh Begur – Managing Partner, ARA Law
  • Sharanya Ranga – Partner, Advaya Legal

Workshop Experts in Gurgaon:

  • Arpita Garg – Partner, J. Sagar Associates
  • Prakriti Jaiswal – Principal Associate, J. Sagar Associates
  • Shinoj Koshy – Partner, Luthra & Luthra
  • Abhijeet Das – Principal Associate, Vaish Associates

Registration Fee & Registration Details:

Registration Fee: INR 8,500 + 18% GST Per Delegate

Discount: 10% Discount on 2 or more delegates

The fees would include Course Material, Participation Certificate and Lunch & Refreshments at the Hotel

For registrations CLICK HERE

For further queries, please contact
BIPLAB SENGUPTA
Mob No: 8130826342

Workshop on FEMA, Foreign Investments and Cross Border Merger Regulations

Dear Professional Colleague,

Greetings from eMinds Legal !

We are writing to you today to invite you for an upcoming full day seminar on FEMA, Foreign Investments and Cross Border Merger Regulations being organised by Corpkonnect in association with eMinds Legal, a boutique Corporate Law Firm.

28th June: Mumbai (Hotel Goldfinch) & Gurgaon (Hotel Ramada)

29th June: Bangalore (The Grand Magrath)  & Chennai (Hotel Clarion President) 

Timing: 09:30 AM – 05:30 PM

Workshop Agenda:

Technical Session 1: FDI Policy – Latest Changes and Emerging Issues

  • Regulatory framework on Inbound Foreign Investments
  • Overall view of FDI Policy 2018 – Latest Changes
  • Master Directions on Foreign Investments and Reporting
  • Transfer of Shares & Critical Issues
  • FEMA Notification No. 20(R)/ 2017-RB – Latest Changes

Technical Session 2:

  • ODI regulations
  • Investment Routes & related regulatory framework
  • Liberalized Remittance Scheme – Latest Developments

Technical Session 3: The New FEMA Cross Border Merger Regulations

  • Background
  • Key Provisions of the new regulations
  • Provisions related to inbound merger
  • Provisions related to outbound merger
  • Hits & Misses of the new regulations
  • Challenged merging entities may face under the new framework

Technical Session 4:

  • External Commercial Borrowings (ECB) Policy
  • ECB Rationalisation and Liberalisation

Recent FPI Related Changes:

  • Latest change in the legal framework of FPI in debt securities
  • FPI Investments – Strict Compliance for Listed entities

Workshop Experts in Mumbai

  • Jay Gandhi – Partner, Shardul Amarchand Mangaldas
  • Anish Mashruwala – Partner, J. Sagar Associates
  • Rajesh Begur – Managing Partner, ARA Law
  • 1 More experts joining soon…

Workshop Experts in Gurgaon:

  • Arpita Garg – Partner, J. Sagar Associates
  • Shinoj Koshy – Partner, Luthra & Luthra
  • Abhijeet Das – Principal Associate, Vaish Associates
  • 1 More experts joining soon…

Registration Fee & Registration Details:

Registration Fee: INR 8,500 + 18% GST Per Delegate

Discount: 10% Discount on 2 or more delegates

The fees would include Course Material, Participation Certificate and Lunch & Refreshments at the Hotel

For registrations or any other information please contact

BIPLAB SENGUPTA
Mob No: 8130826342
Email: [email protected]

Onetime relaxation for EO extension and clubbing of Advance Authorsations – reg

MINISTRY OF COMMERCE AND INDUSTRY

(Department of Commerce)

PUBLIC NOTICE

New Delhi, the 24th October, 2017

No. 34/2015-2020

Sub: Onetime relaxation for EO extension and clubbing of Advance Authorsations – reg

F. No. 01/94/180/186/AM18/PC-4.—In exercise of powers conferred under Para 2.04 and 2.58 of the Foreign Trade Policy 2015-2020, as amended from time to time, the Director General of Foreign Trade on recommendation of Policy Relaxation Committee (PRC), in public interest, hereby makes the following one time relaxations in the provisions of extension of export obligation period and clubbing of advance Authorisations.

1. Facility of Clubbing of Advance Licences/Authorisations:

Onetime relaxation of Para 4.38(i) of Handbook of Procedures 2015-2020, for clubbing of Advance licenses/Authorisations issued under Foreign Trade Policy 2002-2007 and 2004-09 is hereby permitted. Request for clubbing shall be made in ANF-4C to the respective RAs along with prescribed documents. RA shall process the cases as per Para 4.38 of Handbook of Procedures 2015-2020. The last date for submission of such application shall be 31.3.2018. Any applications received in RA, after 31.3.2018 shall not be entertained for clubbing and case shall be regularized either under Para 4.49 of HBP or by initiation of adjudication proceedings on or before 31.05.2018 positively.

 No clubbing shall be permitted in respect of Authorisations where misrepresentation / fraud have come to the notice of RA. Further, no clubbing of Authorisations, where EODC/redemption letter has already been issued or adjudication orders have already been passed by RA/Customs Authority, shall be permitted.

2. Extension of Export Obligation Period: Onetime relaxation is provided for extending Export Obligation (EO) period subject to the conditions specified below.

Exports made under Advance Licences/Authorisations issued under Foreign Trade Policy 2002-07, Foreign Trade Policy 2004-2009 and Advance authorisations issued prior to 5.6.2012 under Foreign Trade Policy 2009-14 shall be regularized by way of extension of Export Obligation Period, as per the procedure prescribed below:

a. Where exports have been made within 36 months from the date of issue of Advance Licences/ Authorisations, same shall be regularized without insisting for any composition fee, except the cases where authorizations issued under Policy circular No-9 dated 30.6.2003/ or items covered under Appendix-30 A of HBP 2004-09/ HBP 2009-14.

b. For the exports made after 36 months but within 48 months shall be regularized on payment of composition fees as follows: i. @ 0.5% per month of FOB value of exports made after 36 months but within 42 months ii. @ 1% per month of FOB value of exports made after 42 months but within 48 months

c. For Authorisations issued under Policy circular No-9 dated 30.6.2003 or inputs covered under Appendix-30A of HBP 2004-09 / HBP 2009-14:

Extension of export obligation period can be granted for a period equivalent to half of the stipulated initial export obligation period on payment of composition fee as follows:

i. @0.5% per month of FOB if exports made within initial export obligation period is more than 50% of stipulated EO.

ii. @ 1% per month of FOB if exports made within initial export obligation period is less than 50% of stipulated EO.

d. Request for extension of Export obligation period shall be filed in respective RAs, on or before 31.3.2018. Any applications received after 31.3.2018 shall not be considered as per this Public notice. e. Only shipping bills which bear file number/ Advance Authorisation number in question shall be taken into account. No free shipping bills shall be allowed to be accounted.

f. No extension in EO would be allowed in respect of Authorisations where misrepresentation / fraud have come to the notice of RA. Further, no extension of Authorisations, where adjudication orders have already been passed by RA/Customs Authority, shall be permitted.

Effect of this Public Notice: One time relaxation is provided for Clubbing of advance Authorisations issued during foreign trade policy 2002-07 and foreign trade policy 2004-09. One time relaxation is provided for extension of export obligation period of Advance authorizations issued under Foreign Trade Policy 2002-07, Foreign Trade Policy 2004-2009 and Advance Authorisations issued prior to 5.6.2012 under foreign trade Policy 2009-14.

ALOK VARDHAN CHATURVEDI,

Director General of Foreign Trade

RBI notifies FEMA (Foreign Exchange Derivative Contracts) (Second Amendment) Regulations, 2017

RESERVE BANK OF INDIA

(Financial Markets Regulation Department )

(CENTRAL OFFICE)

NOTIFICATION

Mumbai, the 24th October, 2017

No. FEMA. 388/2017-RB

Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Second Amendment) Regulations, 2017

G.S.R.1324(E).—In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank hereby makes the following amendments in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000 dated May 3, 2000), namely:-

1. Short Title and Commencement

i. These regulations may be called the Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Second Amendment) Regulations, 2017.

ii. These regulations come into force with effect from the date of their publication in the Official Gazette.

2. Amendment to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000 dated May 3, 2000):

i. Under the principal regulations, a new para 5C to be added :

5C. Permission to resident and non-resident entities to undertake hedge transactions with simplified procedures

 Notwithstanding anything contained in paras 4, 5, 5A and 5B, resident entities with foreign currency exposures and non- resident entities with rupee exposures, other than individuals, may hedge underlying exchange rate risk arising out of transactions permitted under Foreign Exchange Management Act, 1999, or rules or regulations or directions or orders made or issued thereunder, subject to such simplified terms and conditions as may be set forth in the directions issued by the Reserve Bank from time to time.

T. RABI SANKAR,

Chief General Manager

[ F. No. 1/15/EM/2015]

Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2017

RESERVE BANK OF INDIA

(Financial Markets Regulatory Department)

(CENTRAL OFFICE)

NOTIFICATION

Mumbai, the 17th March, 2017

No. FEMA. 384/RB-2017

Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2017

G.S.R. 260(E).—In exercise of the powers conferred by clause (h) of sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank hereby makes the following amendments in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000 dated May 3, 2000), namely:—

1. Short Title and Commencement

(i) These regulations may be called the Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2017.

(ii) They shall be come into force from the date of their publication in the Official Gazette.

2. Amendment under Schedule II: In the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000 dated May 3, 2000), in Schedule II, after the existing para 6, the following shall be added, namely:

A non-resident may enter into a foreign exchange derivative contract with an Authorised Dealer bank in India to hedge an exposure to exchange risk of and on behalf of its Indian subsidiary in respect of the said subsidiary’s transactions subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time.

[F. No. 1/15/EM/2015]

T. RABI SANKAR, Chief General Manager

Footnote : The principal regulations were published in the Official Gazette vide G.S.R. No. 411(E) dated May 8, 2000 in Part II, Section 3, sub-section (i) and subsequently amended vide–

G.S.R. No. 756(E) dt. 28.09.2000,

G.S.R. No. 264(E) dt. 09.04.2002,

G.S.R. No. 579(E) dt. 19.08.2002,

G.S.R. No. 222(E) dt. 18.03.2003,

G.S.R. No. 532(E) dt. 09.07.2003,

G.S.R. No. 880(E) dt. 11.11.2003,

G.S.R. No. 881(E) dt. 11.11.2003,

G.S.R. No. 750(E) dt. 28.12.2005,

G.S.R. No. 222(E) dt. 19.04.2006,

G.S.R. No. 223(E) dt. 19.04.2006,

G.S.R. No. 760(E) dt. 07.12.2007,

G.S.R. No. 577(E) dt. 05.08.2008,

G.S.R. No. 440(E) dt. 23.06.2009,

G.S.R. No. 895(E) dt. 14.12.2009,

G.S.R. No. 635(E) dt. 27.07.2010,

G.S.R. No. 608(E) dt. 03.08.2012,

G.S.R. No. 799(E) dt. 30.10.2012,

G.S.R. No. 330(E) dated 23.05.2013,

G.S.R. No. 374(E) dated 02.06.2014,

G.S.R. No. 365(E) dated 01.06.2016 and

G.S.R. No. 378(E) dated 25.10.2016.

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fourth Amendment) Regulations, 2017

RESERVE BANK OF INDIA

(Foreign Exchange Department)

(CENTRAL OFFICE)

NOTIFICATION

Mumbai, the 9th March , 2017

No. FEMA.387/2017-RB

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fourth Amendment) Regulations, 2017

G.S.R. 224 (E).—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) (Fourth Amendment) Regulations, 2017.

(ii) They shall come into force from the date of their publication in the Official Gazette.

2. Amendment of the Regulations

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), in Regulations 2,

For complete article please refer the below link:-

http://egazette.nic.in/WriteReadData/2017/174699.pdf

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017

Reserve Bank of India

Foreign Exchange Department

Central Office

Mumbai – 400 001

Notification No. FEMA.385/2017-                                                                  RB March 03, 2017

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017

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:-

For complete article please refer the below link:-

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT38585C73529F13249EA924ABF50F43B6835.PDF

FAQ’s_Foreign Investments in India

Foreign Investments in India

(Updated as on February 13, 2017)

These FAQs attempt to put in place the common queries that users have on the subject in an easy to understand language. However, for conducting a transaction, the Foreign Exchange Management Act, 1999 (FEMA) and the Regulations made or directions issued thereunder may be referred to. The relevant principal regulations are the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 issued vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

For complete article please refer below mentioned link:-

https://www.rbi.org.in/Scripts/FAQView.aspx?Id=26

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fifteenth 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)

For complete notification refer below link:-

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10825&Mode=0Id=10825&Mode=0

Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances

RBI/2016-17/198
DBR.No.BP.BC.49/21.04.048/2016-17

December 28, 2016

All Regulated Entities

Madam / Dear Sir,

Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances

Please refer to circular DBR.No.BP.BC.37/21.04.048/2016-17 dated November 21, 2016.

2. On a review, it has been decided to:

(i) Provide 30 days, in addition to the 60 days provided vide the abovementioned circular, in the following categories of loans:

(a) Running working capital accounts (OD/CC)/crop loans, with any bank, the sanctioned limit whereof is ₹1 crore or less;

(b) Term loans for business purposes, secured or otherwise, the original sanctioned amount whereof is ₹1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI). This shall include agriculture loans.

Note: The limits at (a) and (b) above are mutually exclusive limits applicable to respective category of loans.

The above dispensation will apply to dues payable between November 1, 2016 and December 31, 2016.

(ii) Permit all REs to defer the down grade of an account that was standard as on November 1, 2016, but would have become NPA for any reason during the period November 1, 2016 to December 31, 2016, by 90 days from the date of such downgrade in the following categories of accounts:

(a) Running working capital accounts (OD/CC)/crop loans, with any bank, the sanctioned limit whereof is ₹1 crore or less;

(b) Term loans for business purposes, secured or otherwise, the original sanctioned amount whereof is ₹1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI). This shall include agriculture loans.

Note: The limits at (a) and (b) above are mutually exclusive limits applicable to respective category of loans

3. The additional time given in para 2 shall only apply to defer the classification of an existing standard asset as substandard and not for delaying the migration of an account across sub-categories of NPA.

4. Dues payable after January 1, 2017 will be covered by the extant instructions for the respective REs.

Yours faithfully,

(S.S. Barik)
Chief General Manager-in-Charge

Cash deposit of more than Rs. 5000 restricted by RBI

RBI/2016-17/189
DCM (Plg) No. 1859/10.27.00/2016-17

December 19, 2016

The Chairman / Managing Director/ Chief Executive Officer,
Public Sector Banks/ Private Sector Banks / Foreign Banks/ Regional Rural
Banks / Urban Cooperative Banks/ State Cooperative Banks

Dear Sir,

Withdrawal of Legal Tender Character of existing ₹ 500/- and ₹ 1000/- Bank Notes (Specified Bank Notes) – Deposit of Specified Bank Notes (SBNs) into bank accounts

Please refer to Circular DCM (Plg) No.1226/10.27.00/2016-17 dated November 08, 2016 on the captioned subject. On a review of the provisions ii, iii and iv at C of Para 3 dealing with credit of the value of SBNs into bank accounts it has been decided to place certain restrictions on deposits of SBNs into bank accounts while encouraging the deposits of the same under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016 as indicated below:

  1. Tenders of SBNs in excess of ₹ 5000 into a bank account will be received for credit only once during the remaining period till December 30, 2016. The credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation. The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS to that effect so that no more tenders are allowed.
  2. Tenders of SBNs up to ₹ 5000 in value received across the counter will allowed to be credited to bank accounts in the normal course until December 30, 2016. Even when tenders smaller than ₹ 5000 are made in an account and such tenders taken together on cumulative basis exceed ₹ 5000 they may be subject to the procedure to be followed in case of tenders above ₹ 5000, with no more tenders being allowed thereafter until December 30, 2016.
  3. It may also be ensured that full value of tenders of SBNs in excess of ₹ 5000 shall be credited to only KYC compliant accounts and if the accounts are not KYC compliant credits may be restricted up to ₹ 50,000 subject to the conditions governing the conduct of such accounts.
  4. The above restrictions shall not apply to tenders of SBNs for the purpose of deposits under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016.
  5. The equivalent value of specified bank notes tendered may be credited to an account maintained by the tenderer at any bank in accordance with standard banking procedure and on production of valid proof of Identity.
  6. The equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorisation therefor accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually tendering, as indicated in Annex-5 of our circular cited above.

2. Please acknowledge receipt.

Yours faithfully

(P Vijaya Kumar)
Chief General Manager

Amendment to Master Direction on Know Your Customer

RBI/2016-17/177
DBR.AML.BC.47/14.01.01/2016-17

December 8, 2016

All Regulated Entities

Dear Sir/Madam,

Amendment to Master Direction on Know Your Customer

In exercise of the powers conferred under Section 35A of the Banking Regulation Act, 1949, it has been decided to make certain amendments to the Master Direction on Know Your Customer (KYC). The two major changes being notified are as under:

  1. It has been decided to allow One Time Pin (OTP) based e-KYC subject to certain restrictions
  2. All Scheduled Commercial Banks (SCBs) are required to invariably upload the KYC data pertaining to all new individual accounts opened on or after January 1, 2017, with Central KYC Records Registry. SCBs are, however, allowed time upto February 1, 2017 for uploading date in respect of accounts opened during January 2017. REs other than SCBs are to upload the KYC data pertaining to all new individual accounts opened on or after from April 1, 2017, with CKYCR.

Apart from the above, certain other modifications/clarifications to the existing instructions have also been included in the notification as per the notification No. DBR.AML.BC. No. 18/14.01.001/2016-17 dated December 8, 2016.

Yours faithfully

(Lily Vadera)
Chief General Manager

Amendment to Master Direction (MD) on KYC

RBI/2016-17/176
DBR.AML.BC. No. 18/14.01.001/2016-17

December 8, 2016

All Regulated Entities (REs)

Dear Sir/Madam,

Amendment to Master Direction (MD) on KYC

In exercise of the powers conferred under Section 35A of the Banking Regulation Act, 1949 and section 35A read with section 56 of that Act, Rule 9 (14) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 and all other laws enabling the Reserve Bank in this behalf, the Reserve Bank makes the following amendments, with immediate effect, in the Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016 (Master Direction No.DBR.AML.No.81/ 14.01.001/2015-16 dated February 25, 2016) (hereinafter referred to as the Principal Directions), namely, :

i. Explanation to Section 3(a)(ii)d pertaining to ‘definition of beneficial owner in case of trust’ which reads as

Explanation: Term ‘body of individuals’ includes societies” has been deleted.

ii. Section 3(a)(v) is amended to read as follows:

v. “Non-profit organisation” (NPO) means any entity or organisation that is registered as a trust or a society under the Societies Registration Act, 1860 or any similar State legislation or a company registered under Section 8 of the Companies Act, 2013.

iii. Section 12(b) is amended to read as under:

“12. (b) Risk categorisation shall be undertaken based on parameters such as customer’s identity, social/financial status, nature of business activity, information about the clients’ business and their location etc. While considering customer’s identity, the ability to confirm identity documents through online or other services offered by issuing authorities may also be factored in.

iv. Section 15(d) is amended to read as follows:

15(d) A customer shall not be required to furnish separate proof of current address, if it is different from the address recorded in the OVD. In such cases, the RE shall merely obtain a declaration from the customer indicating the address to which all correspondence will be made by the RE.

v. An additional proviso is added to Section 17 as under:

Provided further that a RE may provide an option for One Time Pin (OTP) based e-KYC process for on-boarding of customers.

Accounts opened in terms of this proviso i.e., using OTP based e-KYC, are subject to the following conditions:

  1. There must be a specific consent from the customer for authentication through OTP
  2. the aggregate balance of all the deposit accounts of the customer shall not exceed rupees one lakh.
  3. the aggregate of all credits in a financial year, in all the deposit taken together, shall not exceed rupees two lakh.
  4. As regards borrowal accounts, only term loans shall be sanctioned. The aggregate amount of term loans sanctioned shall not exceed rupees sixty thousand in a year.
  5. Accounts, both deposit and borrowal, opened using OTP based e-KYC shall not be allowed for more than one year within which Customer Due Diligence (CDD) procedure as provided in section 16 or as per the first proviso of Section 17 of the Principal Direction is to be completed. If the CDD procedure is not completed within a year, in respect of deposit accounts, the same shall be closed immediately. In respect of borrowal accounts no further debits shall be allowed.
  6. A declaration shall be obtained from the customer to the effect that no other account has been opened nor will be opened using OTP based KYC either with the same RE or with any other RE. Further, while uploading KYC information to CKYCR, REs shall clearly indicate that such accounts are opened using OTP based e-KYC and other REs shall not open accounts based on the KYC information of accounts opened with OTP based e-KYC procedure.
  7. REs shall have strict monitoring procedures including systems to generate alerts in case of any non-compliance/violation, to ensure compliance with the above mentioned conditions.

vi. Section 18 is amended to read as follows:

18. REs shall print/download directly, the prospective customer’s e-Aadhaar letter from the UIDAI portal if such a customer knows only his/her Aadhaar number or if the customer has only a copy of Aadhaar downloaded from a place/source elsewhere, provided the prospective customer is physically present in the branch/ office of the RE.

vii. Section 28 is amended to add the following:

(f) IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT / Licence/certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute

viii. An explanation is added to Section 33 to read as follows:

“Explanation: Term ‘body of individuals’ includes societies”

ix. Section 33A is added to read as follows:

33A: For opening accounts of juridical persons not specifically covered in the earlier part, such as Government or its Departments, societies, universities and local bodies like village panchayats, a certified copy of the following documents shall be obtained:

  1. Document showing name of the person authorised to act on behalf of the entity;
  2. Officially valid documents for proof of identity and address in respect of the person holding a power of attorney to transact on its behalf and
  3. Such documents as may be required by the RE to establish the legal existence of such an entity/juridical person.

x. A clause (f) is added to existing Section 38 to read as follows:

(f) e-KYC process using OTP based authentication, for the purpose of periodic updation is allowed, provided, while onboarding, the customer was subjected to KYC process as specified in Section 16 or Section 17.

xi. In Section 51, hyper links to ‘ISIL (Da’esh) & Al-Qaida Sanctions List’ and ‘The 1988 Sanctions Lists’ have been updated.

xii. In Section 57 the steps to be taken by REs detailed at Sr. No. (i) to (v) are being substituted with the following:

  1. Scheduled Commercial Banks (SCBs) shall invariably upload the KYC data pertaining to all new individual accounts opened on or after January 1, 2017 with CERSAI in terms of the provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. SCBs are, however, allowed time upto February 1, 2017 for uploading date in respect of accounts opened during January 2017.
  2. REs other than SCBs shall upload the KYC data pertaining to all new individual accounts opened on or after from April 1, 2017 with CERSAI in terms of the provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.
  3. Operational Guidelines (version 1.1) for uploading the KYC data have been released by CERSAI. Further, ‘Test Environment’ has also been made available by CERSAI for the use of REs.

xiii. The opening statement of existing Section 58 is amended to read as follows:

Under FATCA and CRS, REs shall adhere to the provisions of Income Tax Rules 114F, 114G and 114H and determine whether they are a Reporting Financial Institution as defined in Income Tax Rule 114F and if so, shall take following steps for complying with the reporting requirements:

xiv. The clause(f) of existing Section 58 is added which is as follows:

(f) Ensure compliance with updated instructions/ rules/ guidance notes/ Press releases/ issued on the subject by Central Board of Direct Taxes (CBDT) from time to time and available on the web site http://www.incometaxindia.gov.in/Pages/default.aspx. REs may take note of the following:

  1. updated Guidance Note on FATCA and CRS
  2. a press release on ‘Closure of Financial Accounts’ under Rule 114H (8).

xv. The circular DBOD.No.IBS.1816/23.67.001/98-99 dated February 4, 1999 has been repealed and has been added to Appendix of the MD at Serial No. 253.

(Lily Vadera)
Chief General Manager

2016 Amendment to the FCRA

2016 Amendment to the FCRA

  1. This article briefly examines the 2016 amendment to the Foreign Contribution (Regulation) Act, 2010 (“FCRA”), which allows Indian companies owned/controlled by foreign persons to be excluded from the purview of FCRA and how it directly defeats the very purpose of FCRA.

Background

  1. The FCRA regulates receipt of foreign contribution from any foreign source. “Foreign Source”, under Section 2(1)(j) is defined to include “a company within the meaning of the Companies Act, 1956 (1 of 1956), and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following, namely:—
  2. the Government of a foreign country or territory;
  3. the citizens of a foreign country or territory;
  4. corporations incorporated in a foreign country or territory;
  5. trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory;
  6. foreign company;”[1]
  1. Further, Section 2(1)(g) of the FCRA defines a “foreign company” as any company or association incorporated outside India and includes a foreign company as defined under the Companies Act, 1956; a company which is a subsidiary of a foreign company; a company whose registered office is outside India or a multi national company.
  1. Similarly, the repealed FCRA, 1976 also prohibited/regulated receipt of funds from foreign sources which included foreign companies and any company with more than 50% foreign shareholding.[2]
  1. Therefore, under the FCRA 2010 and FCRA 1976, a foreign company or an Indian company in which more than 50% shareholding was held by an offshore/foreign entity or person, would automatically become a “foreign source” and receipt of funds from such companies would become “foreign contribution” for the purpose of the FCRA.

Challenge to Vedanta’s funding of political parties

  1. In 2014, the Association for Democratic Reforms filed a writ petition before the Delhi High Court regarding the blatant violation of the FCRA by various political parties wherein they were receiving foreign contribution from Indian companies which were in turn held by foreign companies.
  1. In Association for Democratic Reforms v. Union of India, W.P.(C) 131/2013, the issued specifically was whether contributions received by political parties, upto 2009, from two companies- Sterling Industries India Ltd. and Sesa Goa Ltd. in which more than 50% shareholding was held by Vedanta Resources Plc. a company incorporated in the UK, would qualify as “foreign contribution” under the FCRA, 1976.
  1. The Delhi High Court held that, firstly, Vedanta Resources PLC would qualify as a “foreign company” under the Companies Act, 1956 and therefore under the FCRA, and secondly, the actual donor companies would come within the definition of foregin source under 2(e)(vi) of the FCRA, 1976, and therefore, ordered the re-examination of receipts of contributions of respondent political parties.

Amendment to the FCRA in May 2016

  1. The FCRA was amended by the Finance Act, 2016 (which was introduced as a money bill) and the following new proviso, to the abovementioned Section 2(1)(j)(vi), was introduced:

Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made thereunder, then, notwithstanding the nominal value of share capital of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source;”.

  1. This effectively allows for an intersection of the FEMA and the FCRA whereby it allows a company which is compliant with the foreign direct investment sectoral caps prescribed by the DIPP and the RBI, to freely contribute to any person (as defined under the FCRA) in India without adhering to the restrictions thereon since they are excluded from the definition of “foreign source”, as defined under S.2(1)(j).

 

Retrospective amendment and effect on ADR v. Union of India     

  1. The 2016 amendment has introduced the new proviso with retrospective effect from the 26th September, 2010.
  1. The Delhi High Court order was limited to an analysis of the provisions of the FCRA, 1976 which has since been repealed. Though prior to the 2016 amendment, the FCRA and FCRA 1976 were pari materia, the 2016 amendment has changed the basis of the order.
  1. An appeal against the Delhi High Court order in Association for Democratic Reforms v. Union of India, W.P.(C) 131/2013, was filed in the Supreme Court and thereafter withdrawn in November 2016.

 

Issues

 A. Effect on the aims of FCRA

  1. The 2016 amendment to the FCRA strikes at the very fundamental basis of the FCRA.

 

  1. The historical context of controlling foreign funding clearly shows that the basis for introducing, both, the (now repealed) Foreign Exchange Regulation Act, 1973 and the FCRA, 1976 was to address the threat of control of the Indian economy and polity by foreign powers.

 

  1. The Parliamentary debates at the time of introduction of the FCRA, 1976, shows that fear of neo-colonialism of India by way of economic means would ultimately result in foreign interference and would therefore be against national interest

 

  1. On this basis, the Delhi High Court had concluded that the FCRA, 1976 was enacted to shield the legislative armoury with in conjunction with other laws like the FERA, 1973.[3]
  1. At the time, foreign funds received through investments by companies under FERA or by other non-profit organisations under the FCRA, 1976, were treated and regulated so as to not compromise the interest of the country.
  1. This purpose apparently resonated with the Indian legislature even in 2010 when the FCRA was passed. That is, P. Chidambaram, the then Minister of Home Affairs, during the Lok Sabha debates on the introduction of the FCRA had stated that it aimed to ensure that legitimate activities are allowed and that “foreign money does not dominate social and political discourse in India”. [4]
  1. The aim to separate foreign funding from any power over Indian politics is clear from the plain reading of the FCRA itself since it even prohibits office bearers of political parties under Section 3, thus bringing within its purview persons who are not in any manner connected with the Government.

 

  1. Therefore, with the 2016 Amendment the way is paved, retrospectively, for all political parties to receive foreign funding from Indian companies as long as they are FEMA compliant, and thus be unregulated by the FCRA.

 

  1. If one views this along with the opening up of the Indian economy to foreign companies, this gives rise to much graver and direct risk of control over Indian politics by foreign nationals through companies.

 

  1. For example, Press Note No.12 (2015 Series) dated November 24, 2015, introduced by the Ministry of Finance, allows upto 49% foreign investment in the defence sector through the automatic route and beyond that with prior Government approval. The 2016 amendment now directly allows for a foreign owned defence company to contribute to a political party which can directly compromise our physical national security.[5]

 

 B.Foreign Source

  1. By allowing FEMA compliant Indian companies which may be fully owned and controlled by foreign persons, to be excluded from the definition of foreign source, amounts to allowing foreign Governments, international agency funded companies, etc. who set up Indian companies to contribute freely to political parties and other organisations, this in effect defeats the very definition of foreign source under Section2(1)(j) of the FCRA.

C.Manner of amendment

  1. The 2016 Amendment to the FCRA, was brought about by the Finance Act, 2016, which was introduced as a money bill.
  1. Therefore, in effect, the Government amended the FCRA through the Finance Bill, which is a money bill. This issue was also raised by Mr. Asaduddin Owaisi, in the Lok Sabha during the debate over the Finance Bill.
  1. Given that the FCRA would not qualify as a matter pertaining to a “money bill” as defined under Article 110 of the Constitution, the constitutionality of this amendment is questionable.
  1. Therefore, the 2016 Amendment to the FCRA has given rise to multiple issues of law and sovereignty which unfortunately very few are raking up currently.

 

[1] Section 2(1) (j) (vi) of the FCRA.

[2] Section 2(1)(e) (iii) and (vi) of the FCRA, 1976.

[3] Order dated March 28, 2014, of the Delhi High Court in Association for Democratic Reforms v. Union of India, W.P.(C) 131/2013, paras 18-22

[4] Lok Sabha Debates, August 19, 2010

[5] Press Note No.12 (2015 Series) dated November 24, 2015, Ministry of Finance

Deposit of Specified Bank Notes (SBNs) – Chest Balance Limit / Cash Holding Limit

RBI/2016-17/164
DCM (Plg) No. 1459/10.27.00/2016-17

November 29, 2016

The Chairman / Managing Director/ Chief Executive Officer,
(All banks maintaining currency chests)

Dear Sir,

Deposit of Specified Bank Notes (SBNs) – Chest Balance Limit / Cash Holding Limit

Please refer to our circular. DCM (CC) No. 2598/03.02.05/2009-10 dated October 27, 2009, which inter alia stated that the balance in a currency chest, exceeding the Chest Balance Limit / Cash Holding Limit  will be deemed to be bank’s own cash, not allowing for inter-chest fungibility.

2. In the wake of deposits of SBNs in massive quantity and accumulations thereof, the above instructions have been revisited and banks are advised as under:

  1. SBNs deposited in the currency chests, since November 10, 2016 will be considered as part of the chest balance in the soiled note category but such deposits will not be reckoned for calculating Chest Balance Limit / Cash Holding Limit.
  2. A review of the above will be taken up in the second fortnight of February 2017.

Yours faithfully,

(P Vijaya Kumar)
Chief General Manager

Accounts under PMJDY – Precautions

RBI/2016-17/165
DCM (Plg) No. 1450/10.27.00/2016-17

November 29, 2016

The Chairman / Managing Director/ Chief Executive Officer,
Public Sector Banks/ Private Sector Banks / Foreign Banks/ Regional Rural
Banks / Urban Cooperative Banks/ State Cooperative Banks/ District Central Cooperative Banks

Dear Sir,

Accounts under PMJDY – Precautions

Please refer to our circular DCM (Plg) No.1424/10.27.00/2016-16 dated November 25, 2016 on “Withdrawal of cash – Weekly limit”. With a view to protect the innocent farmers and rural account holders of PMJDY from activities of money launders and legal consequences under the Benami Property Transaction & Money Laundering laws, it has been decided to place certain limits, as a matter of precaution, on the operations in the PMJDY accounts funded through deposits of Specified Bank Notes (SBNs) after November 09, 2016. As a temporary measure, the banks are advised to observe the following in respect of the PMJDY accounts:

  1. Fully KYC compliant account holders may be allowed to withdraw ₹ 10,000/- from their account, in a month. The branch managers may allow further withdrawals beyond ₹ 10,000 within the current applicable limits only after ascertaining the genuineness of such withdrawals and duly documenting the same on bank’s record.
  2. Limited or Non KYC compliant account holders may be allowed to withdraw ₹ 5,000 per month from the amount deposited through SBNs after November 09, 2016 within the overall ceiling of ₹ 10,000.

Yours faithfully,

(P Vijaya Kumar)
Chief General Manager

Withdrawal of cash – Weekly limit

RBI/2016-17/158
DCM (Plg) No.1424/10.27.00/2016-16

November 25, 2016

The Chairman / Managing Director/ Chief Executive Officer,
Public Sector Banks/ Private Sector Banks / Foreign Banks/ Regional Rural
Banks / Urban Cooperative Banks/ State Cooperative Banks/ District Central Cooperative Banks

Dear Sir,

Withdrawal of cash – Weekly limit

Please refer to our circulars DCM (Plg) Nos. 1272/10.27.00/2016-17 and 1273/10.27.00/2016-17 dated November 13 and November 14, 2016, respectively. The banks are, hereby, advised that they may continue to allow their existing customers to withdraw cash from their accounts upto ₹ 24,000/- per week, till further instructions. The said limit include withdrawals from ATMs as stipulated in our circular DCM (Plg) No.1304/10.27.00/2016-17 dated November 20, 2016.

2. Please acknowledge receipt.

Yours faithfully,

(Suman Ray)
General Manager

Withdrawal of Specified Banknotes : Cash requirements of pensioners and Armed Forces Personnel

RBI/2016-17/154
DCM (Plg) No.1384/10.27.00/2016-17

November 24, 2016

The Chairman / Managing Director/Chief Executive Officer,
Public Sector Banks / Private Sector Banks / Foreign Banks / Regional Rural Banks /
Urban Co-operative Banks / State Co-operative Banks/ District Central Co-operative Banks

Dear Sir,

Withdrawal of Specified Banknotes : Cash requirements of pensioners and Armed Forces Personnel

In view of the withdrawal of legal tender character of the Specified Banknotes (SBN) demand for cash is expected from Government officials and pensioners after the electronic payment of their salary/pension.

2. Banks are therefore advised to take appropriate steps in order to meet this likely demand for cash by:

(i) Ensuring adequate cash availability for taking care of the requirements of pensioners

(ii) Ensuring adequate supply at the military outposts for the cash requirements of the Armed Forces personnel.

Yours faithfully,

(P Vijaya Kumar)
Chief General Manager