Opening of Escrow Accounts for FDI transactions

RBI/2010-11/ 498
A. P. (DIR Series) Circular No. 58

May 02, 2011

All Category-I Authorised Dealer Banks

Madam / Sir,

Opening of Escrow Accounts for FDI transactions

Attention of the Authorised Dealer Category I (AD Category – I) banks is invited to the Foreign Exchange Management (Transfer  or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA. 20/2000-RB dated May 3, 2000, as amended from time to time, and A.P. (DIR Series) Circular No. 62 dated May 24, 2007, permitting AD Category I banks to open Escrow account and Special account on behalf of non-resident corporates for acquisition/transfer of shares/ convertible debentures of an Indian company  through open offers/ delisting/ exit offers, subject to compliance with the relevant SEBI [Substantial Acquisition of Shares and Takeovers (SAST)] Regulations, 1997 and other applicable SEBI regulations.  In all other cases of opening/maintaining of Escrow accounts for FDI related transactions, prior approval from the Reserve Bank is necessary.

2. It is observed that the Escrow mechanism facilitates FDI transactions in cases where parties to the share purchase agreement desire to complete the due diligence process before they finalize the agreement for the same and accordingly, there is a time lag between payment of purchase consideration and the receipt of the shares. To provide operational flexibility and ease the procedure for such transactions, it has been decided to permit AD Category I banks to open and maintain, without prior approval of the Reserve Bank, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and / or provide Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms and conditions as given in Annex. It has also been decided to permit SEBI authorised Depository Participants, to open and maintain, without prior approval of the Reserve Bank, Escrow accounts for securities subject to the terms and conditions as given in Annex. In both cases, the Escrow agent shall necessarily be an AD Category- I bank or SEBI authorised Depository Participant (in case of securities™ accounts). These facilities will be applicable for both issue of fresh shares to the non- residents as well as transfer of shares from / to the non- residents.

3. Necessary amendments to Notification No. FEMA 5/2000-RB dated May 3, 2000 [Foreign Exchange Management (Deposit) Regulations, 2000] are being notified separately.

4. AD Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

5. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(Meena Hemchandra )
Chief General Manager-in-Charge

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