A. P. (DIR Series) Circular No. 31 dated 17th September, 2014

Presently, an Indian company can, under the Automatic Route, issue shares/convertible debentures to a person resident outside India against lump-sum technical knowhow fee, royalty, External Commercial Borrowings (ECB) (other than import dues deemed as ECB or Trade Credit) and import payables of capital goods by units in Special Economic Zones subject to conditions like entry route, sectoral cap, pricing guidelines, etc. and compliance with applicable tax laws.

This circular permits an Indian company to issue equity shares against any other funds payable by the investee company, remittance of which does not require prior permission of the Government of India or RBI under FEMA, 1999 or any rules/regulations framed or directions issued thereunder, if:

1. The equity shares are issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines etc.;

2. A pplicable taxes have been deducted on the funds payable and the conversion to equity is net of applicable taxes.

However, issue of shares/convertible debentures that require Government approval in terms of paragraph 3 of Schedule 1 of FEMA 20 or import dues deemed as ECB or trade credit or payable against import of second hand machinery will continue to be dealt in accordance with extant guidelines.