Western India Regional Council of
The Institute of Chartered Accountants of India

Law Update Details

May 2019 CA. Manoj Shah, CA. Sudha G. Bhushan & CA. Mitesh Majithia

Establishment of Branch Office (BO) / Liaison Office (LO) / Project Office (PO)or any other place of business in Indian by foreign entities

A.P. (DIR Series) Circular No. 27 dated March 28, 2019

The extant Regulations regarding requirement of prior approval of the Reserve Bank of India, for opening of a BO / LO / PO or any other place of business in India, where the principal business of the applicant falls in the Defence, Telecom, Private Security and Information and Broadcasting sector, have since been reviewed in consultation with the Government of India and the amendments have been notified by Government vide Notification No. FEMA 22(R)(2)/2019-RB dated January 21, 2019.

Accordingly, RBI has advised that for opening of a BO/LO/PO or any other place of business in India, where the principal business of the applicant falls in the Defence, Telecom, Private Security and Information and Broadcasting sector, no prior approval of the RBI shall be required, if Government approval or license/permission by the concerned Ministry/ Regulator has already been granted. Further, in the case of proposal for opening a PO relating to defence sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/entered into an agreement with the Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. It is clarified that the term “permission” used in the Notification does not include general permission, if any, available under Foreign Direct Investment in the automatic route, in respect of the above four sectors.

Opening of Non-Resident Ordinary (NRO) Accounts by Long Term Visa (LTV) holders, changes related to Special Non-Resident Rupee (SNRR) Account and Escrow Account

A.P. (DIR Series) Circular No. 28 dated March 28, 2019

Consequent to amendment to Foreign Exchange Management (Deposit) Regulations, 2016 - FEMA 5(R)/2016-RB vide notification no. GSR No 1093(E) dated November 9, 2018, following changes have been made to the extant instructions:

(i) Authorized Dealers (AD) may allow a Foreign Portfolio Investor (FPI) and a Foreign Venture Capital Investor (FVCI), registered with the Securities and Exchange Board of India (SEBI) to open and maintain a non-interest bearing foreign currency account for the purpose of making investment in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, as amended from time to time (FDI Regulations).

(ii) ADs may open only one NRO Account for a citizen of Bangladesh or Pakistan, belonging to minority communities in those countries, namely Hindus, Sikhs, Buddhists, Jains, Parsis and Christians, residing in India and who has been granted a LTV by the Central Government. The account will be converted to a resident account once such a person becomes a citizen of India within the meaning of the Citizenship Act, 1955. This account can also be opened if such person has applied for LTV which is under consideration of the Central Government, in which case, the account will be opened for a period of six months and may be renewed at six monthly intervals subject to the condition that the individual holds a valid visa and valid residential permit issued by Foreigner Registration Office (FRO)/ Foreigner Regional Registration Office (FRRO) concerned. The opening of such NRO accounts will be subject to reporting of the details of the accounts opened by the concerned Authorised bank, to the Ministry of Home Affairs (MHA) on a quarterly basis. The report shall contain details of (i) name/s of the individual/s; (ii) date of arrival in India; (iii) Passport No. and place/country of issue; (iv) Residential Permit/Long Term Visa reference and date & place of issue; (v) name of the FRO/FRRO concerned; (vi) complete address and contact number of the branch where the bank account is being maintained. The Head Office of the AD bank shall furnish the above details on a quarterly basis to the Under Secretary (Foreigners), Ministry of Home Affairs, NDCC-II Building, Jai Singh Road, New Delhi – 110 001.

(iii) In terms of extant instructions, SNRR accounts cannot be held for more than seven years. It has now been decided that SNRR accounts opened by persons resident outside India may remain operative beyond the stipulated period of seven years with RBI approval. Further, the restriction of seven years will not be applicable to SNRR accounts opened by persons resident outside India who are registered with SEBI and wish to make investment in India in accordance with FDI Regulations.

(iv) The extant Schedule 5 of the Foreign Exchange Management (Deposit Regulations) 2016 pertaining to Escrow Accounts has been replaced to align the same with the provisions of FDI Regulations, in terms of which, Escrow Accounts can be opened by residents and non-residents for acquisition/transfer of capital instruments/convertible notes and can also be funded by guarantee(s).

Opening of Foreign Currency Accounts by Re-insurance and Composite Insurance brokers

A.P. (DIR Series) Circular No. 29 dated April 11, 2019

Now re-insurance and composite insurance brokers registered with IRDA may open and maintain non-interest bearing foreign currency accounts with an AD bank in India for the purpose of undertaking transactions in the ordinary course of their business.

Gist of some Compounding Orders passed by Reserve Bank of India

Sr. No.

Subject Matter

Party Name

Contraventions Compounded



Borrowing and Lending in Rupees – FEMA Notification No. 4

Ayursundra Healthcare Pvt. Ltd.

Raising money from NRI Director without using requisite public offer route of issuance of NCDs for raising such money. This resulted in contravention of Regulation 5(1)(i) read with Regulation 5(1)(v)(B) of Notification No. 4

Granting of Loan to its non-resident director without prior approval of RBI. This resulted in contravention of Regulation 3 of Notification No. 4.

As per Regulation 5(1)(i) of Notification No. 4 an Indian company can borrow from NRI by way of issuance of NCDs through public offer subject to certain conditions. Thus, Indian Company borrowing from NR director without issuance of NCDs resulted into contravention.

In terms of Regulation 3 of FEMA Notification No. 4, save as otherwise provided in the Act, rules or regulations, no person resident in India shall borrow in rupees from or lend in rupee to a person resident outside India. Thus, granting of loan by company to NR director without RBI approval resulted in contravention.


Overseas Direct Investment – FEMA Notification No. 120

Maini Precision Products Limited

Overseas WOS of Indian Company purchase shares of another Indian company resulting in ‘FDI through ODI’. Further, setting up of SDS was not reported by the Indian Company. This resulted in contravention of Regulation 5(1) read with Regulation 13 of FEMA 120.

The Indian Company also issued SBLCs to its SDS without equity contribution. This resulted in contravention of Regulation 6(4) of FEMA 120.

As per Regulation 5(1), no person resident in India can make ODI without prior RBI approval. Further, as per Regulation 13, any change in capital structure or set of SDS is to be reported within 30 days of such change. Overseas WOS of Indian Company made step down investment in another Indian Company resulting in contravention of Regulation5(1) read with Regulation 13 of FEMA 120.

As per Regulation 6(4) (i) of FEMA 120, an Indian Party may extend a loan or a guarantee to or on behalf of the JV/ WOS abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the JV”. Maini Precision Products Limited extended guarantees on behalf of its SDS without having any equity contribution in SDS.


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