The Secretarial Standard-2 (SS-2) on General Meetings has been revised and which is issued by t...
Foreign Investment by Indian Resident means investment by an Indian Resident under any of the route i.e. Automatic Route or Approval Route.
In simple words, it can be explained as it an investment by an Indian Resident by way of contribution to capital or subscription to the memorandum of association Of Foreign Entity but does not include Portfolio Investment.
An Indian Party is eligible to make an overseas direct investment under the Automatic Route, Indian party can be referred to a company incorporated in India either under the Indian Partnership Act 1932, Limited Liability Partnership Act 2008, or under any Act of the Parliament.
Or any other entity notified by the Reserve bank.
(i) By way of gift;
(ii) By acquiring shares of a foreign company under the Cashless Employees Stock Option;
(iii) By way of inheritance.
An Indian Company can make foreign investment in the following manner:
(i) They can make the investment up to 200% of its net worth in an outside India incorporated joint venture or a wholly-owned subsidiary as on the date of last audited balance sheet;
NOTE: This ceiling limit of 200% is not applicable if the company is making an investment out of the funds maintained in the EEFC Account with an authorized dealer in accordance with the FEM (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000.
(ii) Investment in overseas companies can be made without being subject to any monetary limits. But that funds should be raised by the international offering of its securities by way of ADR / GDR mechanism;
(iii) They may acquire equity shares of a foreign company in exchange for ADR / GDR of the Indian party issued to the concerned foreign company.
Also, Read: Foreign Investments Criteria for NBFCs: An Overview.
An individual investing outside India cannot invest in the following areas:
Automatic Route: Under this route, no approval is required from Reserve Bank of India for making overseas Direct Investment. The party has to take approval of Authorized Dealer Category– I Bank with an application in form ODI.
Approval route: Under this route, prior approval of Reserve Bank is required.
The criteria to make an investment under Automatic Route are the following:
100% of its net worth (whichever is lower).
The Indian Party has to comply with the following after making the investment outside India:
Recommended Post: Types of Foreign Investment in India.