Explain the provisions contained in the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 related to investment by Indian entities in overseas joint ventures and wholly owned subsi

Section 6 of the Foreign Exchange Management Act, 1999 provides powers to the Reserve Bank to specify, in consultation with the Government of India, the classes of permissible capital account transactions and limits up to which foreign exchange is admissible for such transactions. Section 6(3) of the aforesaid Act provides powers to the Reserve Bank to prohibit, restrict or regulate various transactions referred to in the sub-clauses of that sub-section, by making Regulations. Accordingly Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 vide Notification No. FEMA.120/RB-2004 dated July 7, 2004 was notified which seeks to regulate acquisition and transfer of a foreign security by a person resident in India i.e. investment by Indian entities in overseas joint ventures and wholly owned subsidiaries as an investment by a person resident in India in shares and securities issued outside India. In terms of Regulation 4 of the Notification, general permission has been granted to persons residents in India for purchase/acquisition of securities in the following manner: out of the funds held in resident foreign currency (RFC) account; as bonus shares on existing holding of foreign currency shares; and when not permanently resident in India, out of their foreign currency resources outside India. General permission is also available to sell the shares so purchased or acquired. This Regulation also provides for the sectors abroad like real estate and banking in which investments can be made only with prior approval of RBI. Investments abroad by Indian entities are possible under Automatic Route and Approval Route. If the conditions mentioned in Automatic Route are met like investment limits, permissible instruments, the entity being not under RBI's Exporters Caution List etc, the investment need not have prior approval of RBI.