Presently, an Indian company can, subject to compliance with certain guidelines, issue equity shares/preference shares to a person resident outside India, for consideration other than cash, against payment of royalty/lump sum fees for supply of technology/technical know-how under the Automatic Route.
This Circular, in addition to the above, permits issue of equity shares/preference shares to persons resident outside India for consideration other than cash under the Approval Route in the following cases:
1. Import of capital goods/machineries/equipments (including second-hand machineries), subject to compliance with all the following conditions:
(a) The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export/Import Policy issued by the Government of India.
(b) There is an independent valuation of the capital goods/machineries/equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents/certificates issued by the customs authorities towards assessment of the fair value of such imports.
(c) The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity.
(d) All such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of goods.
2. Pre-operative/pre-incorporation expenses (including payments of rent, etc.), subject to compliance with all the following conditions:
(a) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred.
(b) Verification and certification of the preincorporation/ pre-operative expenses by the statutory auditor.
(c) Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI.
(d) The capitalisation should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.
