Nu.Delhi.Law.Fora. (Advocate-on-Record Supreme Court of India) 19 February 2009

FDI - Share allotement with FIPB Approval - RBI permission necessary

Dear All,

I have a query in matters relating to FEMA. There was a FDI in a group company and the same was duly approved by the FIPB. Pursuant to the said approval the Foreign Investors have invested in the securities of the Company 1. by direct investment in the securities of the company 2. by purchasing the existing shares from the company and the same was also approved by FIPB.

But acording to the RBI that as per FEMA, the Company should have taken approval from it along with the approval of FIPB as per para 22 (iii) of Master Circular No. 2 dated 1st July, 2008 of RBI.

What are the recourse available to the Company since it has already transferred the shares in favour of foreign investor without RBI approval.

Thanks & Regards.

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3 Replies

Muralidharan (Self Employed) 25 February 2009

What RBI says is correct. The company should have obtained permisson from RBI before allotment / trasnfer of shares (after obtaining approval of FIPB). Since allotment and transfer of shares have been made the company has to approach RBI for condoning the actions taken by the company. Please approach your regional branch of RBI and meet the concerned officer at Foreign Exchange Department. Explain to him the entire details. If required please submit a detailed letter to RBI. They may suggest you the recourse available to the company. Do not delay further and get into FEMA trouble.