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LexUpdate
September 23, 2011 New Delhi, INDIA
7. Provisions on ‘Pledging of Shares’ – DIPP in the fourth edition of the FDI Policy has introduced certain provisions permitting the pledge of shares of an Indian company in the following cases: a. A promoter of an Indian company (which has raised ECBs) may pledge the shares of the borrowing company or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company, subject to certain conditions; b. A non-resident holding shares of an Indian company is allowed to pledge the shares in favour of the authorized dealer bank in India to secure credit facilities being extended to the resident investee company for bona fide business purpose, subject to certain conditions; and c. A non-resident holding shares of an Indian company is allowed to pledge the shares in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor/non-resident promoter of the Indian company or its overseas group company, subject to certain conditions. 8. Permission for Opening Non-Interest Bearing Escrow Accounts – The AD Category – I Banks have also been permitted to open and maintain, without the prior approval of the Reserve Bank of India, 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 may be specified by RBI. In addition, DIPP has also included provisions with respect to FDI in Limited Liability Partnerships in the revised edition of the consolidated FDI Policy. The consolidated FDI Policy also serves as a ready reckoner of laws and regulations applicable to foreign investments in India across the sectors. The fourth edition of the consolidated FDI Policy will be valid till March 31, 2012.

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The Delhi High Court (“DHC”) has by its judgment pronounced earlier today upheld the validity of service tax on commercial rentals, as imposed by the…

7. Provisions on ‘Pledging of Shares’ – DIPP in the fourth edition of the FDI Policy has introduced certain provisions permitting the pledge of shares of an Indian company in the following cases: a. A promoter of an Indian company (which has raised ECBs) may pledge the shares of the borrowing company or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company, subject to certain conditions; b. A non-resident holding shares of an Indian company is allowed to pledge the shares in favour of the authorized dealer bank in India to secure credit facilities being extended to the resident investee company for bona fide business purpose, subject to certain conditions; and c. A non-resident holding shares of an Indian company is allowed to pledge the shares in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor/non-resident promoter of the Indian company or its overseas group company, subject to certain conditions. 8. Permission for Opening Non-Interest Bearing Escrow Accounts – The AD Category – I Banks have also been permitted to open and maintain, without the prior approval of the Reserve Bank of India, 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 may be specified by RBI. In addition, DIPP has also included provisions with respect to FDI in Limited Liability Partnerships in the revised edition of the consolidated FDI Policy. The consolidated FDI Policy also serves as a ready reckoner of laws and regulations applicable to foreign investments in India across the sectors. The fourth edition of the consolidated FDI Policy will be valid till March 31, 2012.

The Delhi High Court (“DHC”) has by its judgment pronounced earlier today upheld the validity of service tax on commercial rentals, as imposed by the Finance Act of 2010. All the petitions challenging the levy before the DHC have accordingly been dismissed by it.
The DHC is the fifth High Court of the country which has upheld the levy in this round of litigation, whereas none of the High Courts have disapproved the levy so far. We will circulate a summary and analysis of the DHC judgment after study. For a background of the dispute, please refer to LexPrompt of August 24, 2011, or request the sender.

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