In another move to facilitate FDI investments, RBI has relaxed the norms for the issuance of equity shares by Indian companies to non-residents against funds payable by the Indian company to such non-residents. Hitherto, Indian companies were permitted to issue shares and convertible debentures to a person resident outside India against lumpsum technical know-how fees, royalty, External Commercial Borrowing (ECB) and import payables of capital goods by SEZ units.

RBI through its circular dated 17 September, 2014, has further permitted Indian companies to issue equity shares against any funds payable by the Indian company, remittance of which does not require prior permission of the Government of India or RBI under FEMA, 1999. However, issuance of preference shares or convertible debentures by the Indian company for such funds payable is not permitted. This facility is only available to Indian companies that can accept FDI under the automatic route and all guidelines relating to sectoral caps, pricing guidelines etc. would be applicable.

In relation to pricing of the equity shares issued in lieu of funds payable, an unlisted issuer would have to comply with any internationally accepted pricing methodology. Whereas, listed issuers would have to comply with the requirements under the SEBI ICDR Regulations, 2009.

In effect, Indian companies would now be able to issue equity shares, in lieu of cash, for any amounts payable for all current account and capital account transactions which are within the permissible remittance limit and do not require prior approval of RBI or the Government of India. These may include payments for goods imported, services availed, salaries payable etc.

Keeping in line with the primary objectives behind the FDI policy i.e. to accelerate economic growth, providing the option to offer equity participation to foreign suppliers and service providers would definitely help domestic companies in conserving their cash resources for their operational activities in India and this would be beneficial especially for early stage companies.