The Reserve Bank of India (RBI) has further liberalized India's outbound investment rules. It's now become easier for an Indian company to sell its shares in a foreign joint venture or wholly owned subsidiary.
Previously, such sales were only permitted in a limited number of cases. Even then, the permitted sales were subject to various conditions, including the somewhat unrealistic requirement that the sale could not result in any write-off.
Under the new rules, it is now possible for an Indian company to sell its shares in a foreign venture at a loss to the original investment.
Even if the sale results in a loss, no prior RBI approval is required in three cases: (i) if the foreign venture is listed on an overseas exchange, (ii) if the Indian company is listed and has a net worth of at least Rs. 1,000 million, or (iii) if the Indian entity's original investment was less than US$10 million.
If the sale does not result in a loss to the original investment, no prior RBI approval is needed to effect the sale.
However, in both instances, a few basic compliance requirements still need to be met when making the sale without RBI approval. These requirements relate to ensuring that: (i) the shares are sold at a fair value, (ii) there are no dues owed to the Indian entity, (iii) the foreign entity has been operating for at least a year, and (iv) the Indian entity isn't being investigated by Indian authorities. As before, the sales have to be subsequently reported to the RBI.
In the few cases where an Indian entity still won't be able to meet the new requirements, it will only be able to sell its shares in a foreign venture with the RBI's prior approval.