Mumbai, May, 8:The Reserve Bank of India (RBI), the apex bank of country, has excluded conversion of imported second-hand machinery from the purview of government on issue of equity shares/ preference shares under the Government route by conversion of import of capital goods / machineries / equipments (including second-hand machineries) and pre-operative / pre-incorporation expenses (including payments of rent, etc.).

Now RBI has allowed the issue equity shares/ preference shares to a person resident outside India, being a provider of technology / technical know-how and against royalty / lumpsum fees due for payment subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws through automatic route.

With a view to incentivizing use of machinery embodying the latest state-of-the-art technology, compliant with international standards, in terms of being green, clean and energy efficient, RBI has decided to exclude conversion of imported second-hand machinery from the purview of this provision.All the other instructions contained in the above referred A.P. (DIR Series) Circulars shall remain unchanged. 

According to the extant guidelines for issue of equity shares/ preference shares under the Government route have been reviewed in consultation with the Government of India and, accordingly, it has been decided to permit issue of equity shares / preference shares under the Government route of the FDI scheme for the following categories of transactions:Import of capital goods/ machineries / equipments (including second-hand machineries), subject to compliance with the following conditions:

The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export / Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the Reserve Bank;

There is an independent valuation of the capital goods / machineries / equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports;

The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity;and 

All such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of goods.Pre-operative/pre-incorporation expenses (including payments of rent, etc.) subject to compliance with the following conditions:

Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred;Verification and certification of the pre-incorporation/ pre-operative expenses by the statutory auditor;

Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI; and

The capitalization should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.

All requests for conversion should be accompanied by a special resolution of the company.

Government’s approval would be subject to pricing guidelines of the Reserve Bank and appropriate tax clearance.