Dear Uncle

Dear Uncle,

October 17, 2008

I wish & hope that you are in fine health. As discussed with you over telephone yesterday, regarding my query on remittance of foreign exchange for Direct Investment outside India under automatic approval route, kindly advise me on my query submitted below. Kindly refer to the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 issued under Notification No. FEMA19/2000-RB, dated 3-52000[GSR 456(E), dated 3-5-2000]. In the Part I of the above notification regarding Direct Investment Outside India, Section 3 states as under: Investment under this regulation may be funded out of one or more of the following sources, namely:(i)

out of balance held in EEFC account of the Indian party.

(ii)

Drawl of foreign exchange from the authorized dealer in India not exceeding 50%( 25% upto 1-3-2002) of the networth of the Indian party as on last audited balance sheet.

(iii)

Utilization of the amount raised by issue of ADRs/GDRs by the Indian party.

It is clear from the reading of above provision that limit of 50% of networth is not applicable in case of remittance from EEFC account or raising of ADRs/GDRs issue. However it is not clear whether this limit of 50% of networth will also be applicable in case of remittance partly from EEFC account, partly from drawl of foreign exchange from the authorized dealer & partly from ADRs/GDRs issue. It was advised to my client by Exchange Control Department at Calcutta RBI office that the limit of 50% will only be applicable to the drawl of foreign exchange from authorized dealer in case the remittance is partly made out of EEFC account, partly from ADRs/GDRs issue & partly from drawl of foreign exchange from the authorized dealer, which means the limit will not be applicable to the total remittance from a combination of any of the above sources. However point (iv) of Certificate by Statutory Auditor of the Indian Party required to be enclosed with form ODA, which is required to be submitted to the authorized dealer at the time of remittance, specifies that the amount of foreign exchange proposed to be purchased for remittance towards the investment together with remittances already made and exports and other dues capitalized for investment abroad during the current financial year under the Automatic Route is/will be within 50% of the networth of the Indian Party as on the date of last audited balance sheet. It further specifies that limit of 50% will be

applicable if investment in part or full is funded out of purchase of foreign exchange from market and/or capitalization of exports and other dues. It appears from the reading of the above provision in the auditors certificate that limit of 50% will be applicable to the total remittance even if the remittance is partly made out of purchase from the market. So I request you to kindly advise me the correct position in respect of the above. In this respect I also request you to kindly advise me regarding the “ date of the last audited Balance Sheet”, as to whether the date of audited Balance Sheet can only be 31st March of a particular Financial Year & whether the audit means only the statutory audit done once in a financial year or if a client gets the audit done on a periodic interval then whether the date of periodic audit can also be considered for determining the “date of last audited Balance Sheet” I will be highly grateful to you for your help in this regard. Thanking You, Yours Sincerely, Vinay Kumar Shraff