With the growing the healthcare sector and India being a popular designation for the foreign patients. Some of these foreign patients make payment to Indian hospitals for the medical services in foreign currency. Now, what is the nature of these transactions involving forex and their implications under the Foreign Exchange Management Act, 1999 (FEMA) are to be carefully considered.

Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000 (FCA Regulations) specify the various foreign currency accounts that can be maintained by persons resident in India, and the restrictions regarding debits from and credits to the same.

A person resident in India may open, hold and maintain with an authorised dealer in India, a Foreign Currency Account to be known as Exchange Earners’ Foreign Currency (EEFC) Account, subject to the terms and conditions of the EEFC Account Scheme.A person resident in India may credit to its EEFC Account, 100% of the foreign exchange earnings from, inter alia, inward remittance through normal banking channel. Further, re-credit of unutilised foreign currency earlier withdrawn from the account is also a permissible credit to the EEFC Account of the person resident in India.

FCA Regulations also enumerate the permissible debits from the EEFC Account. Payment outside India towards current account transactions is permissible from EEFC Account. In addition to this, there is no restriction on withdrawal in Rupees of funds held in an EEFC Account. However, the amount withdrawn in Rupees will not be eligible for conversion into foreign currency and for re-credit to the EEFC Account.

It is to be noted that 100% foreign exchange earnings can be credited to the EEFC Account subject to the condition that the sum total of the accruals in the account during a calendar month is converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.

Incase where the EEFC account is not maintained and the foreign currency is received by a person (not being an individual resident in India) as remuneration for services rendered, whether in India or outside India, then such person shall sell within seven days from the date of its receipt, to an authorised person, the foreign exchange realized.

Views expressed by Gaurav Shanker,
Partner, Business Law Chamber

You may direct all your queries or comments at gaurav@businesslawchamber.com

As per the extant policy, FDI is allowed under the automatic route in most of industries or sectors . FDI under the automatic route does not require prior approval either by the Government of India or the RBI.

FDI under the Government or approval route requires the approval of Foreign Investment Promotion Board (FIPB). However, in some cases, post the FIPB approval, the investors also had to wait for the RBI approval for the actual FDI inflows. The FDI inflows used to happen only after the RBI approved the decisions separately under FEMA.

Since the RBI is also represented in the FIPB and consulted on each FDI decision, government has now decided to do away with any such additional approval under FEMA from RBI.  The changes however are yet to be enforce and will be effective once they are notified by the RBI.

Views expressed by Gaurav Shanker,
Partner, Business Law Chamber

You may direct all your queries or comments at gaurav@businesslawchamber.com

There is a constant discussion whether preference shares be considered as an equity or a debt. Therefore, it is important to refer to the applicable accounting standards. IFRSs, the applicable accounting standards, are not concerned with the legal nature of the share, but with whether the share represents residual interest in the entity or is an obligation in the nature of a debt.

Under IFRS the meaning of the term ‘equity’ is not the same as under law. Equity is defined to mean residual economic interest in the entity, i.e. the net value of the assets of the entity after deducting all the applicable debts. Accordingly, redeemable preference shares are treated as debt. This is so even if the law requires that such preference shares are to be redeemed out of the profits or through a new issue of equity shares. Being entitled to a fixed rate of dividends also bring preference shares closer to debt and farther from equity.

Views expressed by Gaurav Shanker,
Partner, Business Law Chamber

You may direct all your queries or comments at gaurav@businesslawchamber.com

Any receipt of money by way of deposit or loan or in any other form, by a company shall be treated as a ‘deposit’. The definition specifically excludes certain events wherein it shall not constitute a ‘deposit’ under law.

A private limited company incorporated in India cannot accept a deposit from any person except its members subject to fulfillment of conditions specified under law. Therefore, it is pertinent to read the exclusions of ‘deposit’ and evaluate the permissible events for a private company. Unlike the loan to a person by the company in which that person is a director, the process is quite simple incase of a loan to a company from a director. However, law prohibits such loan advancements from a director in the event such facility provided is pursuant to further borrowing by concerned director.

If the loan is advanced to the company by a person who is a director in that borrower company, the director needs to furnish a declaration (in writing) to the company that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others. Such a case it does not fall within the ambit of a ‘deposit’ under the law.

The company will require a resolution is to be passed at the meeting of board of directors. An amount upto the aggregate paid up share capital and free reserves is permissible and any sum in excess of the aforesaid aggregate amount will mandate a special resolution to be passed at the shareholders’ meeting.

Such director advancing the facility will have to disclose his interest in the board meeting and will not to be considered for the purposes of want of quorum. The incidence will also require submission of necessary form (MGT 14) with the concerned registrar of companies.

Views expressed by Gaurav Shanker,
Partner, Business Law Chamber

You may direct all your queries or comments at gaurav@businesslawchamber.com