This Circular has proposed the following six changes:
1. Creation of charge on immovable/movable property and other financial assets
A charge can be created, under the Approval Route within the overall limit fixed (presently 400%) for financial commitment, on the immovable/movable property and other financial assets of the Indian Party and their group companies by way of pledge/ mortgage/hypothecation. However, a ‘No objection’ letter needs to be obtained from lenders to the entities on whose assets the charge is being created.
2. Reckoning bank guarantee issued on behalf of JV/WOS for computation of financial commitment
For calculating the financial commitment of the Indian Party to its overseas JV/WOS, henceforth, bank guarantee issued by a resident bank on behalf of the overseas JV/WOS of the Indian party will also be considered if the same is backed by a counter guarantee/collateral from the Indian Party.
3. Issuance of personal guarantee by the direct/ indirect individual promoters of the Indian
Party General permission is now granted to indirect resident individual promoters of the Indian Party to also give a Personal Guarantee on behalf of the overseas JV/WOS of the Indian Party.
4. Financial commitment without equity contribution to JV/WOS
An Indian Party can undertake, under the Approval Route, financial commitment by way of guarantee/ loan, without equity contribution, in the overseas JV/WOS if the laws of the host country permit incorporation of a company without equity participation by the Indian Party.
5. Submission of Annual Performance Report
In cases where laws of the host country do not prescribe mandatory audit of the books of account of the overseas JV/WOS, the Indian Party can submit the Annual Performance Report on the basis of unaudited annual accounts of the overseas JV/ WOS, if:
(a) The Statutory Auditors of the Indian Party certify that the unaudited annual accounts of the JV/WOS reflect the true and fair picture of the affairs of the overseas JV/WOS.
(b) The un-audited annual accounts of the overseas JV/WOS have been adopted and ratified by the Board of the Indian Party.
6. Compulsorily Convertible Preference Shares (CCPS)
Henceforth, Compulsorily Convertible Preference Shares (CCPS) will be treated on par with equity shares (and not as loans) and the Indian Party will be allowed to undertake financial commitment based on the exposure to overseas JV/WOS by way of CCPS.
