FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government:
i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted.
ii) where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector.
iii) FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval either by the Government or the Reserve Bank of India.
iv) The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.
FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and issue of shares to the non-resident investors. The companies are required to notify the concerned Regional Office of the Reserve Bank of India of receipt of inward remittances within 30 days of such receipt and submit form FC-GPR within 30 days of issue of shares to the non-resident investors.

FDI is prohibited under Government as well as Automatic Route for the following sectors:
Retail Trading (except single brand product retailing)
Atomic Energy
Lottery Business
Gambling and Betting
Business of Chit Fund
Nidhi Company
Agricultural or plantation activities (cf Notification No. FEMA 94/2003-RB dated June 18, 2003).
Housing and Real Estate business(exceptdevelopment of townships, construction of residen¬tial/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005 )
Trading in Transferable Development Rights (TDRs).

A two-stage reporting procedure has been introduced for this purpose.

On receipt of money for investment:

Within 30 days of receipt of money from the non-resident investor, the Indian company will report to the Regional Office of the Reserve Bank of India, under whose jurisdiction its Registered Office is located, containing details such as:

Name and address of the foreign investor/s

Date of receipt of funds and their rupee equivalent

Name and address of the authorised dealer through whom the funds have been received, and

Details of the Government approval, if any.
Upon issue of shares to non-resident investors:

Within 30 days from the date of issue of shares, a report in Form FC-GPR, PART A together with the following documents should be filed with the concerned Regional Office of the Reserve Bank of India.

Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that;

The company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB dated 3rd May 2000 as amended from time to time.

The proposal is within the sectoral policy / cap permissible under the automatic route of RBI and it fulfills all the conditions laid down for investments under the Automatic approval route namely

a) Non-resident entity/ies (other than individuals) to whom it has issued shares does / do not have any existing joint venture or technology transfer or trade mark agreement in India in the same field.

b) The company is not investing in an SSI unit & the investment limit of 24 % has been observed/ requisite approvals have been obtained.

c) Shares have been issued on rights basis and the shares are issued to non-residents at a price that is not lower than that at which shares are/were issued to residents.

d) Shares issued are bonus shares.

e) Shares have been issued under a scheme of merger and amalgamation of two or more Indian companies or reconstruction by way of demerger or otherwise of an Indian company, duly approved by a court in India.

Shares have been issued in terms of SIA/FIPB approval No. --------------------- dated -------------------- Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

The term 'transfer' is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien". {Section 2 (ze) of FEMA, 1999}.

The FEMA Regulations give specific permission covering the following forms of transfer i.e. transfer by way of sale and gift. These permissions are discussed below:

A person resident outside India can freely transfer share/convertible debenture by way of sale to a person resident in India as under:

Any person resident outside India (other than NRIs/OCBs) can transfer by way of sale the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.
A non-resident Indian (NRI) or an erstwhile Overseas Corporate Body may transfer by way of sale, the shares/convertible debentures held by him to another NRI only.
Any person resident outside India may sell share/convertible debenture acquired in accordance with FEMA Regulations, on a recognized Stock Exchange in India through a registered broker.
A person resident outside India can freely transfer share/convertible debenture by way of gift to a person resident in India as under:

Any person resident outside India, (not being a non-resident Indian or an erstwhile overseas corporate body), can transfer by way of gift the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.
A non-resident Indian (NRI) may transfer by way of gift, the shares/convertible debentures held by him to another NRI only.
Any person resident outside India may transfer share/convertible debenture to a person resident in India by way of gift.

In case the transfer does not fit into any of the above, either the transferor (resident) or the transferee (non-resident) can make an application for the Reserve Bank's permission for the transfer. The application has to be accompanied with the following documents:

A copy of FIPB approval (if required).

Consent letter from transferor and transferee clearly indicating the number of shares, name of the investee Company and the price at which the transfer is proposed to be effected.

The present/post transfer shareholding pattern of the Indian investee company showing the equity participation by residents and non-residents category-wise.

Copies of the Reserve Bank of India's approvals/acknowledged copies of FC-GPR evidencing the existing holdings of the non-residents.

If the sellers/transferors are NRIs / OCBs, the copies of the Reserve Bank of India's approvals evidencing the shares held by them on repatriation / non-repatriation basis.

Open Offer document filed with SEBI if the acquisition of shares by non-resident is under SEBI Takeover Regulations.

Fair Valuation Certificate from Chartered Accountant indicating the value of shares as per the following guideline.

In the case of unlisted shares the fair value is worked out as per the erstwhile Controller of Capital Issue/s.

For listed shares, the price worked out is not less than the higher of average weekly high and low quotations for 6 months and average of daily high and low quotation or two weeks preceding 30 days prior to the date of making application to FIPB.

All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer.

Allotment of shares on preferential basis shall be as per the requirements of the Companies Act, 1956, which will require special resolution in case of a public limited company.

In case of listed companies, valuation shall be as per the Reserve Bank of India /SEBI guidelines as follows:

The issue price shall be either at:

i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date or

ii) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date.

In case of unlisted companies, valuation shall be done in accordance with the guidelines issued by the erstwhile Controller of Capital Issues.

Indian companies are allowed to raise capital in the international market through the issue of ADRs/GDRs. They can issue ADRs/GDRs without obtaining prior approval from RBI if it is eligible to issue ADRs/GDRs in terms of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and subsequent guidelines issued by Ministry of Finance, Government of India.

After the issue of ADRs/GDRs, the company has to file a return in the proforma given in Annexure 'C' to the RBI Notification No.FEMA.20/ 2000-RB dated May 3, 2000. The company is also required to file a quarterly return in a form specified in Annexure 'D' of the same regulations.

There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.

Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/GDR with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager. The Operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.52 dated November 23, 2002.

Two-way fungibility Scheme: Under the limited Two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/GDRs. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21 dated February 13, 2002. The Scheme provides for purchase and re-conversion of only as many shares into ADRs/GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long ADRs/GDRs are quoted at discounts to the value of shares in domestic market, an investor will gain by converting the ADRs/GDRs into underlying shares and selling them in the domestic market. In case of ADRs/GDRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs/GDRs. The scheme is operationalised through the Custodians of securities and stockbrokers under SEBI.

FCCBs can be issued by Indian companies in the overseas market in accordance with Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.

The FCCB issue needs to conform to External Commercial Borrowing guidelines, issued by RBI vide Notification No. FEMA 3/2000-RB dated May 3, 2000 as amended from time to time.

Foreign investment through preference shares is treated as foreign direct investment. Foreign investment in preference share is considered as part of share capital and fall outside the External Commercial Borrowing (ECB) guidelines/cap.

Preference shares to be treated as foreign direct equity for purpose of sectoral caps on foreign equity, where such caps are prescribed, provided they carry a conversion option. If the preference shares are structured without such conversion option, they would fall outside the foreign direct equity cap

Issue of equity shares against lump sum fee, royalty and external commercial borrowings (ECBs) in convertible foreign currency are permitted, subject to meeting all applicable tax liabilities and sector specific guidelines.

Issue of shares under ESOP by Indian companies to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India directly or through a Trust up to 5% of the paid up capital of the company.

Issue and acquisition of shares by non-residents after merger or de-merger or amalgamation of Indian companies.

Issue shares or preference shares or convertible debentures on rights basis by an Indian company to a person resident outside India.

Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in unlisted shares of Indian companies.

No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India. Even for NRIs/PIOs investment is allowed only on non-repatriation basis.

There are no restrictions under FEMA for investment in Rights shares at a discount, provided the rights shares so issued are being offered at the same price to residents and non-residents.