Some of the major changes envisaged through the proposed Amendment Bill are as follows:

Some of the major changes envisaged through the proposed Amendment Bill are as follows:

• Allotment of Director Identification Number (DIN) to any individual, intending to be appointed as director in a company or for any existing director of a company, for the purpose of his identification as such, through electronic mode;
• Ensuring secure e filing and authentication of documents consistent with Information Technology Act, 2000 through Digital Signature Certificates. This modality would prevent any tempering of e-documents subsequent to filing. The e-documents shall be registered, maintained and inspected through electronic mode;
• Provision of such value added services by the Government through electronic forms from the electronic database created in the data process.
• Enabling powers to the Government to prescribe rules where necessary to facilitate e filing by corporate entities and access to corporate data statutorily placed in the public domain.

Amendment To The Companies Act, 1956

The Union Cabinet has approved the proposal of Ministry of Company Affairs for introducing limited amendments in Companies Act, 1956 through a Bill called Companies (Amendment) Bill, 2006 in the ensuing session of Parliament. These amendments would enable smooth implementation of the MCA 21 e-governance project - the modernization and e-governance initiative of the Government being implemented by the Ministry of Company Affairs.

The MCA21 project will provide the public-corporate entities and others- easy and secure online access to the MCA services, including filing of documents and public access to corporate information, required to be in the public domain under the statute, at any time and from anywhere. This would result in efficiency in provision of professional services and statutory supervision of corporate processes through the use of modern information technology and computers.

recent amendment in company law

Recent Trends in Corporate Laws

Major Changes in Company Law & Foreign Exchange Management Act, 2000
– An Analysis

The year 2001 has seen some major changes in the corporate sector. Increasing liberalisation has forced companies to become more competitive and adopt different strategies to survive. The Government has also responded by continuing with its liberalisation policy and further simplifying the laws & procedures.

Significant changes have been made in the field of corporate laws in the last couple of years in areas such as capital market regulations, corporate governance, simplification of tax laws, rationalisation of excise and customs duty etc. We also understand that more such progressive measures such as introduction of VAT, introduction of a new Competition Act to replace the existing MRTP Act etc are in store in the near future.

This article proposes to analyse the major amendments in Company Law and Foreign Exchange Regulations.

Significant changes in Company Law

Company Law in India has been left largely undisturbed since the enactment of the Companies Act, 1956. Periodically, certain amendments have been carried out, to keep in tune with the changing circumstances. The Government has planned to overhaul the entire Companies Act, 1956 and replace it with an entirely new Act. However, as this has been delayed, some of the major items were introduced by way of an amendment to the Companies Act by the enactment of the Companies Amendment Act, 2000.

Further changes by way of changes in deposit acceptance, notification of Rules for new provisions introduced in the Amendment Act, 2000 have also been made during the year 2001.

The major changes can be summarised as under :

• Introduction of the Companies Amendment Act, 2000
• Amendments to Deposit Acceptance Regulations
• Rules regarding passing of resolutions by Postal Ballot
• Rules regarding issue of shares with differential voting rights
• Rules regarding appointment of directors by small shareholders
• Companies (Amendment) Bill, 2001
• Companies (Second Amendment) Bill, 2001
• Companies (Amendment) Ordinance, 2001

Companies Amendment Act, 2000

The major amendment to the Companies Act, 1956 were carried out by enacting the Companies (Amendment) Act 2000, which came into force with effect from 14^th December 2000. This Act fulfilled some of the long standing demands of the corporate sector.

The major highlights of the Act are :

• New definitions added

• Concept of deemed public companies abolished

• Depositor protection measures introduced

• Introduction of postal ballot for listed companies

• Directors responsibilities / disqualifications increased

• Right of small share holders to appoint directors - made optional

• Constitution of audit committee made mandatory for certain companies

• Secretarial compliance audit introduced

An analysis of some of the major changes in the Act is given under.

New Definitions

Securities

As per Section 2 (45AA) a new term "Securities" has been defined in the Companies Act. It states that Securities shall mean securities as defined in Section 2(h) of the Securities Contract (Regulation) Act, 1956. As per the definition in the Securities Contract (Regulation) Act, securities include marketable shares, debentures etc.

As marketable shares, debentures etc have been held to mean only listed shares and debentures, it leads to the conclusion that all references in the Companies Act to "securities" would only mean listed securities. This would imply that the provisions of Section 372 A etc will not have any applicability in case an investment is made in the shares of an unlisted company.

Interim Dividend

As per the newly inserted Section 2 (14A), Dividend has been defined to include Interim Dividend. Also, the Directors have been empowered to declare interim dividend.

This amendment seems to have been prompted by the fact that in a number of cases the Board of Directors declared interim dividend, but did not pay the same, contending that interim dividend is not a debt which was enforceable against the company.

This amendment seeks to confer on interim dividend the same legal status as a final dividend declared by the shareholders. The move, though a welcome measure, casts certain obligations on the company before declaring interim dividend. The Company is now bound to comply with the provisions of the Companies Act such as providing for depreciation & transferring certain percentage of profits to reserves, before the declaration of interim dividend.

Minimum Capitalisation Norms

The Act has now made it mandatory for all companies to have a minimum paid up share capital. This welcome step will ensure that "shell companies" are slowly weeded out.

The Minimum capitalisation has been fixed at Rs. 1 Lakh for Private Companies and Rs. 5 Lakhs for Public Companies. A two year time frame has been given for existing companies to achieve this limit. In case of companies which are incorporated after this Act, then, such companies need to comply with the limits at the time of incorporation.

The section also provides that in case companies do not fulfill the capitalisation norms, then, the Registrar of Companies "shall" strike off such a company as being a "defunct company" under Section 560 of the Companies Act. As this is a mandatory provision, this would offer an easy exit to companies which are not active, without going through the formalities of applying to the Registrar of Companies for striking off their name as a defunct company.

Depositor Protection Measures introduced

The Amendment Act has sought to ensure protection of small depositors by the introduction of two new sections 58AA & 58AAA in the Act. Small Depositors have been defined as persons who have deposited upto Rs.20,000 in a financial year with a company.

Defaults made by a company on small deposits is required to be intitmated to the Company Law Board. The Company is also restrained from accepting further deposits from small depositors. It is however, permitted to accept deposits from other depositors !

Section 58 AA (7) provides that where a company accepts deposits from small depositors and then obtains any bank loan, the bank loan shall be first used for repayment of the deposit made by the "small depositor". This seems to be applicable even when a company is not defaulting on the repayment of any deposit.

This clause seems to be erroneously drafted and should be made applicable only when the company has defaulted on repayment of deposits. However, in spite of several representations, the section continues to remain as it is, thereby creating a great deal of confusion to the corporate sector.

Non Voting Shares permitted to be issued - Sec 86

Section 86 of the Act permits a company to issue equity shares with differential voting rights. The Government has on 9^th March 2001, framed the rules for issue of shares with differential voting rights.

Issue of Debentures – Sec 117

Major changes have been made with regard to issue of debentures by companies by the introduction of Section 117 A, 117 B & 117 C.

Section 117 A requires that a Debenture Trust Deed shall be executed in respect of any issue of debentures made by a company.

Section 117B makes appointment of Independent Debenture Trustees mandatory in the case of any public issue of debentures. The section also casts an obligation upon the Trustees to monitor the quality and value of assets of the Company and to file a petition before the Company Law Board, if they are of the opinion that the assets are inadequate to meet the redemption of the debentures.

Section 117 C is a far reaching provision as it makes it mandatory for all companies to create a Debenture Redemption Reserve in respect of debentures issued after this Act, from out of the profits every year. However, the quantum of reserve to be created has not been specified.

Under the SEBI Guidelines, Financial Institutions are exempt from creation of DRR. However, under the Companies Act, they would be liable to create DRR in respect of the debentures issued by them. This seems to be an apparent contradiction. It is expected that some clarification would be issued in this matter.

It is also important to note that it is impossible for financial institutions to create a DRR for the whole amount of the debentures borrowed. This is because, such financial institutions raise large amounts by way of debentures - usually 2-3 times their networth. In such cases, the profits will simply not be adequate to provide for a Debenture Redemption Reserve.

Introduction of Postal Ballot – Sec 192 A

A new Section 192 A has been introduced which requires listed companies to transact certain items of business only through a postal ballot. This is to ensure that equal representation is provided to all shareholders to vote on important matters. The Central Government has, on 10^th May, 2001, laid down the rules relating to postal ballot, which are dealt with later on in this Article.

Appointment of Auditors – Sec 224

Section 224 (1-B) of the Act has been amended. The intention of the amendment seems to be to exclude private companies in computing the number of companies for which a person can be appointed as an auditor. However, the intention of the legislature has not been reflected in the language of the Section. The Fourth Proviso to Section 224 (1-B) states that "the provisions of this sub-section does not apply to a private company".

This would mean that in case a private company wishes to appoint an Auditor, then, it can appoint as its Auditor :

1. A person who is holding the post of an Auditor in excess of the specified number of companies, and / or,

2. Also a person who is in full time employment elsewhere.

But a public limited company , if it wishes to appoint a person as its auditor, will still have to ensure that the Auditor who is proposed to be appointed is within the limits specified in Section 224 (1-B).

Modifications to the Auditors Report – Sec 227

The Act has amended the format of the Auditor’s Report. The Auditor is now required to state in his report any adverse remarks on the functioning of the company in "Thick Type" or in "Italics". The Auditor is also required to report on the Disqualification of any Director under the newly introduced Sec 274 (1) (g).

Appointment of Director by Small Shareholders – Sec 252

This is another step towards ensuring participation of all shareholders in the decision making process of the Companies. This provision is applicable to all public limited companies with a paid up capital exceeding Rs.5 Crs and having more than 1000 "small share holders". "Small Shareholders" have been defined as persons whose nominal value of share holding is less than Rs.20,000.

The Central Govt has on 9^th March, 2001, prescribed the rules for the appointment of Director by Small Shareholders.

Additional Disqualifications for a Director – Sec 274 (1) (g)

Section 274 of the Companies Act has now been amended to provide for an additional disqualification for a person being appointed as a Director of a company.

As per the newly inserted Section 274 (1) (g), if a person is already a Director of a Public Company, and that public company fails to

• File Balance Sheet and Annual Return for 3 consecutive yrs from 1.4.99, or,

• Defaults in pymt of Dividend or repayment of Deposit / Debentures for more than 1 year;

then, for a period of 5 years from the date of default, such a person cannot be appointed as a Director of another Public Company.

The section makes it clear that the disqualification will only be at the appointment stage. Hence, a Director of a defaulting company will not be liable to vacate office. The onus on reporting such disqualifications has been placed on the Auditor of the Company.

Constitution of Audit Committee - Sec 292A

A new provision making constitution of an Audit Committee has been made mandatory. This applies to all public companies (listed or unlisted) having paid up capital of Rs.5 Crs & above.

Under this Section, an Audit Committee of the Board has to be formed with a minimum of 3 Directors. Two thirds of the total strength of the Committee shall be Directors other than managing or whole time directors. Terms of reference to be specified by Board.

It may be noted that the Listing Agreement of the Stock Exchanges also require Listed Companies to constitute an Audit Committee. As per the provisions of the Listing Agreement, the Audit Committee should have a minimum 3 Directors. The committee should consist only of Non - Executive Directors with majority being Independent. However, in the Companies Act, the Audit Committee is permitted to have a maximum of one thirds as Executive / Whole Time Directors. The Listing Agreement also prescribes the scope of Audit Committee.

Introduction of Secretarial Audit – Sec 383 A

A new provision has been introduced for Companies having a paid up capital above Rs.10 lakhs and less than Rs.50 Lakhs. Such companies are required to file a Compliance Certificate certified by a Practicing Company Secretary with the Registrar of Companies. The copy of the certificate is also to be attached with Board Report u/ Sec 217.

Companies (Compliance Certificate) Rules, 2001 - Dated 31^st January 2001

The Companies Amendment Act, 2000, had made it mandatory for companies not required to appoint a whole time secretary and having a paid up capital exceeding Rs. 10 lacs, to file a certificate from a company secretary in whole time practice. These rules lay down the format of the said certificate

As per the Rules, this certificate shall also be appended along with the report of the Board of Directors and circulated to the shareholders.

Companies (Appointment of Small Shareholders' Director) Rules 2001 - Dated 9^th March , 2001

The Companies Amendment Act, 2000 has introduced a new provision which enables small shareholders to appoint their nominees as Directors on certain Companies. This is applicable only to public limited companies having a paid up capital above Rs. 5 Crores and having 1000 or more small shareholders. Small shareholder has been defined as a person holding shares of the nominal value of Rs. 20,000 or less.

However, this is not a mandatory provision and the company has the discretion to appoint a nominee of the small shareholder on its Board.

The Government has laid down these rules, which are to be observed in such an appointment.

As per the said Rules, the Company may suo moto nominate a small shareholder for the post of a Director. Alternatively, the small shareholders also have the right to nominate a person. However, such person should also be a small shareholder.

The election of such a director shall, in the case of a listed company, be conducted through postal ballot. In the case of an unlisted company, it may be passed at a general meeting.

The person so appointed shall hold office for a period of 3 years, during which time, he shall not be liable to retire by rotation. Also, such a director cannot be appointed as the Managing Director or whole time director of the Company.

It is important to note that a director who is nominated by small shareholders has no special rights. In the absence of any specific authority, a single director may not be able to make any difference to the management. Also, such a director may not have any say in the day to day running of the business, but would nevertheless, be liable for any default committed by the Company.

Companies (Issue of Share Capital with Differential Voting Rights), Rules 2001- Dated March 9^th 2001

The Companies Amendment Act, 2000, has vide Section 86 , permitted public companies to issue shares with differential voting rights. Consequently, Section 88 which prohibited issue of such shares , now stands deleted.

It may be borne in mind that the prohibition on issue of shares with differential voting rights was only on public companies. Private companies, were, all along permitted to issue shares with differential / nil voting rights.

After the enabling provision, the Government has, on 9^th March 2001, notified the Rules relating to issue of shares with differential voting rights.

As per the said Rules, only a company which has a track record of profitability as per Section 205 and has not defaulted in filing annual accounts and annual returns for three immediately preceding financial years and has not defaulted on repayment of its deposits / debentures, is eligible to issue such shares.

It is necessary that the Articles of Association of the company authorises the issue of shares with differential voting rights. Hence, existing companies which do not have this provision in their Articles, have to amend their Articles. Consequently, it also becomes necessary to amend the Capital Clause of the Memorandum of Association of the company.

At the time of seeking shareholders approval for such an issue, the Company is to disclose the variation in voting rights which is proposed to be brought about by such an issue.

It may be noted that companies are not permitted to convert their equity shares into shares with differential voting rights and vice versa. It should also be ensured that the shares with differential voting rights which are issued do not exceed 25% of the total share capital issued (including both equity and preference capital).

Companies (Passing of Resolution by Postal Ballot) Rules, 2001 - Dated 10.5.2001

The Companies (Amendment) Act, 2000, requires every listed company to transact certain items of business only through a postal ballot. These Rules have been laid down to specify the items for which postal ballot is necessary and the mode of conducting the postal ballot. These rules permit a shareholder to vote by postal or electronic mode.

As per the said Rules, the following items of business shall be passed only through a postal ballot:

1. Alteration of object clause of MOA

2. Alteration of AOA in relation to insertion of provisions defining company

3. Buyback of own shares u/ Sec 77A

4. Issue of shares with differential voting rights u/ Sec 86

5. Change in registered office outside the local limits of the present place

6. Sale of undertaking u / Sec 293 (1) (a)

7. Granting of loans / guarantees / security in excess of the limits specified u/ Sec 372 A

8. Election of a director u/ proviso to Sec 252 (1)

9. Variation in the rights attached to a class of shares or debentures u/ Sec 106.

However, it is open for a company to transact any other item of business, other than the above mentioned items, through postal ballot.

The Company is required to give notice to all shareholders either by registered post ack due or under Certificate of Posting along with an advertisement in a leading English Newspaper & one vernacular newspaper in the area.

The shareholder is to give his consent within 30 days of the date of notice. Replies received after this date will be considered invalid.

The Company would appoint an independent person to act as the scrutinizer , who would scrutinize all the ballots received and submit a report to the Chairman.

The Chairman would declare the result at the General Meeting.

It is important to note that transacting the items of business mentioned aforesaid, does not absolve the company from holding a general meeting. Under the Rules, the Company is required to hold a General Meeting to declare the result of the postal ballot.

Also, it is pertinent to observe that the matters for which notice has been given by postal ballot, cannot be amended or withdrawn. In other words, the inherent power of the shareholders to amend the resolution or withdraw the resolution , is removed in a scheme of postal ballot.

Amendments in Deposit Acceptance Regulations

The Government has amended the Companies (Acceptance of Deposits) Rules, to provide for the following :

• The maximum rate of interest has been reduced from 15 % to 14 %

• Amounts received by a private company from its director, relative of such director, or member are exempt from the definition of a deposit.

• Companies with Net Owned Fund of less than Rs. 1 Crore are not permitted to invite public deposits.

• In case of default in repayment of deposits, the Company shall pay a penal rate of 18 % p.a to the depositor for the period of delay. In case the depositor is a small depositor, then, the rate shall be 20 % p.a.

• The Company shall state the following in the advertisement :

  • The total number of small depositors & amount due to them in respect of which default has been made.

  • The fact of waiver of interest accrued on deposits of small depositors

The introduction of a minimum networth criteria to accept public deposits is a welcome measure and will ensure that companies which are not financially sound, do not misuse the public deposits route to cheat investors.

However, the introduction of the penal interest clause is surprising. When the Company is unable to repay a matured deposit, how will it be able to pay the same along with the penal interest. The clause seems to have been inserted only to instill a sense of fear among companies.

Establishment of the Investor Education Protection Fund

As per Section 205 C of the Companies Act, every company is required to transfer certain sums to the Investor Education & Protection Fund. The Central Government, has by a notification on 1^st October 2001, constituted the Investor Education & Protection Fund and has also framed rules for the same.

Accordingly, the Companies which are required to credit amounts to the Fund , shall do so within 30 days from the due date and shall also file with the concerned ROC a copy of the challan evidencing deposit to the Fund along with a Statement in Form 1.

The Fund may use the moneys so collected for the purposes of investor awareness programmes and may release funds to such organisations, which are engaged in these activities.

However, the following points need to be clarified :

• The treatment of the balance lying in the Unpaid Dividend Account of Companies as on 31.10.1998 (the date when the amendment proposing the Fund came into effect) has not been specified. Will such balances also be liable for transfer to the Fund after a period of 7 years. This may not be appropriate as transfer of such amounts to the Fund will deprive the shareholder to claim the amount back. Hence, the requirement of transfer to the Fund should apply only in case of dividends declared by Companies after 31.10.1998.

• The periodicity of transfer of the amount of unclaimed matured deposits has also not been specified. However, it can be safely assumed that it would be sufficient if companies transfer such amounts at the end of every year and not as and when the 7 year period is completed in respect of each deposit.

Companies (Amendment Bill) 2001

The Companies (Amendment Bill) 2001 was introduced in Parliament on 30^th August 2001. The salient features of the Bill are :

• Consolidating the powers relating to Companies with the proposed National Company Law Tribunal, which are presently vested with various authorities such as High Courts, Company Law Board, BIFR, AAIFR. Orders passed by the Tribunal can be appealed before the Appellate Tribunal. On orders passed by the Appellate Tribunal, an appeal can be preferred before the Supreme Court only. Hence, the jurisdiction of the High Courts on all matters relating to Companies Act is proposed to be removed.

• A New Part VI A is proposed to be inserted in the Companies Act to provide for matters relating to revival, rehabilitation and winding up of sick industrial Companies. This would result in the repeal of the Sick Industrial Companies (Special Provisions) Act.

• The definition of a "sick company" is proposed to be changed to include a company which has 50% erosion of networth also as a sick company.

• Also, a company which fails to repay any amount to its creditor for any 3 consecutive quarters, shall also be treated as a sick company. It is interesting to observe that there is no minimum limit which has been prescribed here. Failure to repay even Rs. 100 for the specified time period would result in the company being categorised as a sick company. Also, the onus has been cast upon the Auditors to certify that the company is a sick company under this clause.

• A new fund is to be formed for the rehabilitation of sick companies and a levy is proposed to be made from all companies for contribution to the Fund. The levy is a percentage of the turnover of the Company. This is irrespective of whether the company is a profit making company or not. From the section, it also appears that even sick companies are liable to contribute to the Fund !

• Default in filing of Balance Sheet and Annual Return by companies for 5 consecutive years, has also been made as a ground for winding up the Company.

• All pending cases against Companies in any Forum under the Companies Act are proposed to be transferred to the High Court

Companies (Second Amendment Bill) 2001

This Bill enables co-operatives to convert themselves as companies under the Companies Act. However, it is proposed to retain the salient features of a cooperative even after their conversion as companies.

This is proposed to be done by introduction of a new Part IX A under the Companies Act to deal with such companies. This conversion can be done only if two-thirds of the of the members agree. The converted company would be designated as "producer company" to indicate that ownership & transfer of shares of such companies are restricted.

Companies (Amendment) Ordinance, 2001 – Dated - 23.10.2001

The Ordinance empowers Companies to buy back their own shares without seeking approval of the shareholders.

Such companies can pass a board resolution and buy back upto 10% of the total paid up equity capital and free reserves of the Company

Once such a buy back offer has been made, the Company is prohibited from making another buy back for another 1 year.

Companies are now permitted to come out with a further issue of shares after 6 months from the date of buy back. Earlier, companies were prohibited from coming out with a further issue of shares for a period of 24 months from the date of the buy back.

Amendments to Foreign Exchange Management Act, 2000

The Foreign Exchange Management Act (FEMA) came into force with effect from 1^st June 2000, thereby replacing the earlier enactment – the Foreign Exchange Regulation Act, 1973.

The introduction of FEMA has been welcomed by all sections of people – both the industry and the professionals. FEMA has led to considerable liberalisation of the foreign exchange regime in India, coinciding with the comfortable foreign exchange reserves of India. The object behind introduction of FEMA is to free all current account transactions, while capital account transactions would continue to be regulated by the RBI. However, the process of approvals has been made simpler.

FEMA is broadly divided into 7 Chapters and 49 Sections. Under FEMA, there are the Rules which are notified by the Government of India relating to Current Account Transactions. With regard to Capital Account Transactions, the RBI has issued notifications and circulars permitting certain capital account transactions.

After the enactment of FEMA, some major amendments have been carried out in FEMA.

These relate to :

• Automatic Approval for External Commercial Borrowings

• Amendments relating to Inbound Investments

• Amendments relating to Outbound Investments

• Other Amendments

Automatic Approval for External Commercial Borrowings

The RBI has vide A.P.D.I.R Circular Number 10, dated 5^th September 2000, considerably liberalised the procedure for making External Commercial Borrowings.

Accordingly, now it is possible to borrow amounts upto US $ 50 Million without taking prior approval of the Ministry of Finance / RBI, subject to the following conditions:

1. The loan is raised from internationally acceptable and recognized lenders

2. The average maturity of the loan is not less than 3 years

3. The loan should be organised through a reputed merchant banker registered with the regulatory authorities of the host country.

Amendments relating to Inbound Investments

Registered Foreign Venture Capital Investors permitted to invest in Indian Venture Capital Companies

Vide A.P.D.I.R Circular Number 24, dated 6^th January 2001, the RBI has now permitted foreign venture capital investors to invest in India Venture capital undertakings.

However, this does not come under the automatic route, and the foreign investor must seek approval before making such investment.

It is necessary that the Foreign Venture Capital Investor (FVCI) must be registered with the SEBI and must apply to the RBI through SEBI to invest in an Indian Venture Capital Undertaking.

The FVCI may purchase or sell the securities held by it in the Indian Venture Capital Undertaking at any price and shall also adhere to the relevant SEBI Guidelines.

Foreign Investment prohibited in Print Media

Earlier, foreign investment was permitted in the print media sector. However, the RBI has vide, A.P.D.I.R Circular Number 24, dated 6^th January 2001, prohibited any foreign investment in the print media sector under both the Direct Investment Route and under the Portfolio Investment Route.

Prohibition on Overseas Corporate Bodies to make further investments in Indian Companies under the Portfolio Investment Scheme

Foreign Investment was permitted under the Portfolio Investment Scheme (PIS) route for all categories of investors – FIIs, OCBs, NRIs etc, subject to certain sectoral caps.

Overseas Corporate Bodies (OCBs) – are entities that are incorporated abroad where the beneficial ownership by Non Resident Indians exceeds 60% or more.

OCBs were permitted to invest in the Indian Companies, both under the Foreign Direct Investment Scheme and also under the Portfolio Investment Scheme. However, the OCBs were not registered with any regulatory agency in India such as SEBI or RBI.

Considering the recent trends in the stock markets and the role played by OCBs, the Government has decided to prohibit OCBs from making any further investments in Indian Companies under the PIS Route. They are permitted to retain their existing investments till such time they are sold. However, they are permitted to invest in Indian Companies under the Foreign Direct Investment Route. – vide A.P.D.I.R Circular Number 13 (2001-02), dated 29^th November, 2001.

Amendments relating to Outbound Investments

Rules for direct invstments outside India liberalised

The RBI has vide A.P.D.I.R Circular Number 13 (2001-02), dated 29^th November, 2001 further liberalised the rules for foreign direct investments outside India by Indian Companies. Accordingly,

• Indian Companies can now freely invest upto US $ 50 Million in a financial year in JV / Wholly Owned Subsidiaries outside India, provided the entity is engaged in the similar line of business. The requirement that the Indian Entity should have a 3 year profitability track record, has also been dispensed with.

• Indian Companies, which have issued ADR/GDR, can also use 100% of such proceeds for overseas investments as against the limit of 50% earlier.

• Registered Partnership Firms in India are now permitted to invest upto USD 1 Million in a financial year, in foreign concerns which are engaged in the similar line of business. However, such firms should be members of Indian Professional bodies such as ICAI, Bar Council, ICSI etc.

• Employees of Indian Branches / Indian Subsidiaries of Foreign Companies, are now permitted to acquire the shares offered by the parent foreign company upto a limit of USD 20,000 in a calender year. This has been increased from the earlier limit of USD 10,000 in a block of five years.

Other Amendments

• Endorsement of the foreign exchange drawn on the passport, has now been made optional.

• An Indian party can make a payment to a foreign company / entity , which has paid the guarantee amount on behalf of the Indian party.

• Authorised Dealers have been permitted to grant loans to Non Residents in India in Indian Rupees for their official / personal purposes.

• Foreign Nationals resident in India are now permitted to open foreign currency accounts outside India, without any approval from the RBI.

• Indian companies are now permitted to payment in Rupees to its non whole time director, who is a non resident & who visits India, towards sitting fees, commission etc.

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