Home » Legal Update » RBI Consolidates Guidelines on transfer by way of sale of shares of JV/WOS of Indian companies

RBI Consolidates Guidelines on transfer by way of sale of shares of JV/WOS of Indian companies

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Anuj Sahay

The Reserve Bank of India (“RBI”) has issued A.P. (DIR Series) Circular No. 73 on 29 June 2011 (“Circular”). Through this Circular, RBI has consolidated the existing guidelines related to the transfer by way of sale of a joint venture (“JV”) or wholly owned subsidiary (“WOS”) outside India, with and without write off.


An Indian party may transfer (by way of sale) to another Indian Party which complies with the provisions of the Overseas Direct Investment (“ODI”) Regulations (specifically Regulation 6 of FEMA Notification 120/RB-2004 dated July 7, 2004) or a person outside India, any share or security held by it in a JV or WOS outside India, subject to the conditions specified below. Such sale will not require the approval of the RBI.

1.1             the sale does not result in any write off of the investment made,

1.2             the sale is to be effected through a stock exchange where the shares of the overseas JV/ WOS are listed,

1.3             if the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant/ Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV/WOS,

1.4             the Indian party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and/or export proceeds from the JV or WOS,

1.5             the overseas concern has been in operation for at least one full year and the Annual Performance Report together with the audited accounts for that year has been submitted to the RBI,

1.6             the Indian shareholder is not under investigation by CBI/DoE/SEBI/IRDA or any other regulatory authority in India.


Indian parties may disinvest in the following cases (subject to the conditions mentioned in points 1.2 to 1.6 above), without prior approval of the RBI, where the amount repatriated on disinvestment is less than the amount of the original investment:

1.1             in cases where the JV/WOS is listed in the overseas stock exchange, or

1.2             in cases where the Indian party is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore, or

1.3             where the Indian Party is an unlisted company and the investment in the overseas venture does not exceed USD 10 million, or

1.4             where the Indian Party is a listed company with net worth of less than Rs.100 crore but investment in an overseas JV/WOS does not exceed USD 10 million.

The Indian party is required to submit details of such disinvestment through its designated AD category-I bank within 30 days from the date of disinvestment. An Indian Party, which does not satisfy the conditions provided above for undertaking any disinvestment in its JV/WOS abroad, shall have to apply to the Reserve Bank for prior permission.

The actual notification is here.


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