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New Delhi, 28.11.2014 | It has come to the notice of the Reserve Bank of India that some Indian companies are accessing overseas market for debt funds through overseas holding / associate / subsidiary / group companies. It has also been reported that such borrowings are raised at rates exceeding the ceiling applicable in terms of extant FEMA regulations and that the funds so raised are routed to the Indian companies which accounts for sole/major operations of the group. Different modalities/structures are resorted to for channelling such funds for Indian operations including investment in rupee bonds floated by the Indian company.

On a review of the matter in light of the existing regulatory framework, the Reserve Bank of India has clarifiedtypo3/target=“_blank as under:

  1. Indian companies or their Authorised Dealer (AD) banks are not allowed to issue any direct or indirect guarantee or create any contingent liability or offer any security in any form for such borrowings by their overseas holding / associate / subsidiary / group companies except for the purposes explicitly permitted in the relevant Regulations.
  2. Further, funds raised abroad by overseas holding / associate / subsidiary / group companies of Indian companies with support of the Indian companies or their AD banks as mentioned at (1) above cannot be used in India unless it conforms to the general or specific permission granted under the relevant Regulations.
  3. Indian companies or their AD banks using or establishing structures which contravene the above shall render themselves liable for penal action as prescribed under FEMA, 1999.

AD banks may bring the contents of this Circular to the notice of their constituents and customers.

Article by Seth Dua & Associates, the Indian member firm of Alliuris, head-quartered in New Delhi

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