Approvals for Technical Collaboration Agreements

10B.1

(i)

Under the old procedure, all proposals for entering into foreign technical

collaborations were required to be approved by the Government of India and on

receipt of Government's approval, formal authorisations under FERA 1973 were being issued by Reserve Bank. Copies of collaboration agreements were required to be filed with Reserve Bank/Government of India. However, under the revised liberalised procedure Reserve Bank considers under the Automatic Route, applications from Indian companies for foreign technical collaborations, for lumpsum payment of technical know-how fee upto Rs.one crore and/or royalty up to 5% on domestic sales and 8% on exports over a period of 7 years from the date of commencement of commercial production or 10 years from the date of agreement, whichever is earlier. Since November 1996, the limit for lumpsum payment of technical know-how fee has been increased from Rs. one crore to US $ 2 million. Applications for foreign technical collaborations under the Automatic Route should be made to the concerned regional office of Reserve Bank in form FT (RBI). Proposals which do not conform to the above parameters would require the approval of Secretariat for Industrial Assistance (SIA), Ministry of Industry, Government of India, New Delhi. The extension of foreign technical collaboration agreements (including those approved by Reserve Bank) would also need the approval of SIA, Government of India.

(ii)

In cases where the collaboration is approved by Reserve Bank/Government

of India, a letter of approval will be issued indicating the terms and conditions of the approval. A copy of the letter of approval will also be issued by Reserve Bank to the designated branch of an authorised dealer (as mentioned in the application) through whom remittances of technical know-how fee and/or royalty are to be made by the Indian company. A registration number will be granted by Reserve Bank when an approval is granted for foreign technical collaboration under the Automatic Route. Also in cases where the approval for collaboration is granted by the Government, the Indian company should obtain a registration number for the collaboration agreement from the concerned regional office of Reserve Bank before remittances under the agreement are made.

(iii)

The Indian company which has obtained approval for the foreign collaboration

agreement from the Reserve Bank/Government should file a copy of the agreement with the designated branch of the authorised dealer through whom remittances falling due under the collaboration agreement would be made. The Indian company should also submit a Return in form TCD to the concerned office of Reserve Bank in the first fortnight of January each year showing payments made under the collaboration during the preceding calendar year duly countersigned by the designated branch of an authorised dealer.

(iv)

Indian companies which had executed collaboration agreements under

the old procedure and the agreements are subsisting should switch over to the revised procedure for making payments under the agreement (see paragraph 10B.5). Application for the purpose should be made to the concerned office of the Reserve Bank together with a Return in Form TCD showing details of all payments made under the collaboration till the 31st December of the previous year. Reserve Bank will grant a registration number and approval to the concerned authorised dealer to effect future remittances.

Investment in Shares by Foreign Collaborators

(ii)

Applications for foreign investment which do not satisfy the parameters

prescribed for Automatic Approval by Reserve Bank or in 100% Export Oriented Units located outside the Export Processing Zones are required to be made to the Secretariat for Industrial Assistance (SIA)/Foreign Investment Promotion Board (FIPB), as the case may be. If the unit is located in any of the Export Processing Zones, applications should be made to the Development Commissioner of the Export Processing Zone concerned.

(iii)

With a view to simplifying the procedure under SIA/FIPB route, Reserve Bank,

vide its Notification No.F.E.R.A.182/98-RB dated 10th February 1998 has granted general permission under Sections 19(1) and 29(1)(b) of FERA 1973 to Indian companies for issue and export of shares/securities to foreign investors/collaborators in respect of such investments approved by SIA/FIPB. As a result of the general permission, Indian companies seeking foreign investments based on the approvals granted by SIA/FIPB and satisfying the conditions laid down in the notification will not require any prior clearance of Reserve Bank. Such Indian companies may issue shares to foreign investors/collaborators and file a declaration in form ISD together with the required documents, with the concerned Regional Office of Reserve Bank under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares/securities to foreign investors/collaborators. In the case of composite approvals granted by SIA/FIPB for foreign financial as also technical collaborations, while issue of shares/securities will be governed by the general permission, in respect of technical collaboration, the procedure contained in paragraph 10B.1 should be followed

A.D.(M.A. Series) Circular No.29

(iv)

Retention of share subscriptions in foreign currency accounts in India/abroad for

financing import of capital goods, etc. requires prior approval of Reserve Bank. Reserve Bank will also permit receipt of interest-free loans as advance share subscription from the collaborators to be adjusted against share capital contribution later, for meeting expenses in India of the Indian company.

NOTE:

Indian companies intending to raise foreign equity through preferential allotment of shares to non-residents are required to comply with the guidelines issued by Government of India, Reserve Bank of India, SEBI and other regulatory authorities from time to time.