In exercise of the
powers conferred by clause (j) of sub-section (3) of Section 6, subsection (2)
of Section 47 of the Foreign Exchange Management Act, 1999 ( 42 of 1999), the
Reserve Bank makes the following regulations, namely: (i) These regulations may
be called the Foreign Exchange Management (Guarantees) Regulations, 2000. (ii) They shall come into
force on 1st day of June, 2000. In these regulations,
unless the context requires otherwise, - (i) 'Act' means the
Foreign Exchange Management Act, 1999 (42 of 1999); (ii) 'authorised dealer'
means a person authorised as an authorised dealer under sub-section (1) of
section 10 of the Act; (iii) the words and
expressions used but not defined in these regulations shall have the same
meanings respectively assigned to them in the Act. (iv) [1]['Irrevocable Payment
Commitment (IPC)' means irrevocable confirmation issued by the custodian bank
in favour of a stock exchange/clearing corporation of a stock exchange on
behalf of its customers, to meet the payment obligation arising out of a 'buy'
transaction.] Save as otherwise
provided in these regulations, or with the general or special permission of the
Reserve Bank, no person resident in India shall give a guarantee or surety in
respect of, or undertake a transaction, by whatever name called, which has the
effect of guaranteeing, a debt, obligation or other liability owed by a person
resident in India to, or incurred by, a person resident outside India. No corporate
registered under the Companies Act, 1956 (1 of 1956) shall avail domestic rupee
denominated structured obligations by obtaining credit enhancement in the form
of guarantee by international banks, international financial institutions or
joint venture partners, except with the prior approval of the Reserve Bank. Provided howsoever
that, [2][a
person resident in India who is eligible to raise foreign currency loan under
sub-regulation (1) of Regulation 6 of Foreign Exchange Management (Borrowing or
Lending in Foreign Exchange) Regulations, 2000 read with Schedule I thereto,]
may obtain, without the prior approval of the Reserve Bank, credit enhancement
in the form of guarantee from a person resident outside India for the
domestic debts raised by such companies through issue of capital market
instrument like bonds and debentures subject to satisfying the terms and
conditions as may be stipulated by the Reserve Bank, from time to time, in this
regard.][3] (1) An authorised dealer
may give a guarantee in respect of any debt, obligation or other liability
incurred by a person resident in India and owed to a person resident outside
India, in the following cases, namely: where the debt,
obligation or other liability is incurred by the person resident in India, - (i) as an exporter, on
account of exports from India; (ii) as an importer, in
respect of import on deferred payment terms in accordance with the approval
granted by the Reserve Bank for import on such terms. [4][(1A) An Authorised
Dealer may give guarantee, Letter of Undertaking or Letter of Comfort in
respect of any debt, obligation or other liability incurred by a person
resident in India and owed to a person resident outside India (being an
overseas supplier of goods, bank or a financial institution), for import of
goods, as permitted under the Foreign Trade Policy announced by the Government
of India from time to time and subject to such terms and conditions as may be
specified by Reserve Bank from time to time.] [5][(1B) - An authorised
dealer in India may give guarantee or standby Letter of Credit in respect of an
obligation incurred by a person resident in India and owed to a person resident
outside India in connection with payment of margin money in respect of approved
commodity hedging transaction of such person residing in India subject to such
terms and conditions as may be stipulated by the Reserve Bank from time to
time.] (2) An authorised dealer
may give a guarantee in respect of any debt, obligation or other liability
incurred by a person resident outside India, in the following cases, namely: (i) where such debt,
obligation or liability is owed to a person resident in India in connection
with a bonafide trade transaction : Provided that the
guarantee given under this clause is covered by a counter-guarantee of a bank
of international repute resident abroad; (ii) as a
counter-guarantee to cover guarantee issued by his branch or correspondent
outside India, on behalf of Indian exporter in cases where guarantees of only
resident banks are acceptable to overseas buyers. (iii) [6][(a) An authorised
dealer in India may give guarantee on behalf of a person resident outside India
acquiring shares or convertible debentures of an Indian company through open
offers/ delisting/ exit offers, provided (i) the transaction is in
compliance with the provisions of the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeover)[SEBI(SAST)] Regulations; (ii) the guarantee is
covered by a counter guarantee of a bank of international repute; and (b) the guarantee
shall be valid for a tenure co-terminus with the offer period as required under
the SEBI (SAST) Regulations.] (3) An authorised dealer
may, in the ordinary course of his business, give a guarantee in the following other
cases, namely: (i) on behalf of his
customer or branch or correspondent outside India in respect of missing or
defective documents, or authenticity of signatures; (ii) in favour of
organizations outside India issuing travellers cheques sTocked for sale in India
by the authorised dealer or by his constituents who are authorised persons. (iii) [7][in favour of foreign
airlines/International Air Transport Association (IATA), on behalf of IATA
approved travel agents.] (iv) [8][in favour of a
non-resident service provider, on behalf of a resident customer who is a
service importer, subject to such terms and conditions as stipulated by the
Reserve Bank from time to time. Provided that no
guarantee for an amount exceeding USD 500,000 or its equivalent shall be issued
on behalf of a service importer other than a Public Sector Company or a
Department/Undertaking of the Government of India/State Government. Provided further that
where the service importer is a Public Sector Company or a
Department/Undertaking of the Government of India/State Government, no
guarantee for an amount exceeding USD 100,000 or its equivalent shall be issued
without the prior approval of the Ministry of Finance, Government of India. Explanation: For the
purpose of this regulation, "Public Sector Company" means a
Government company as defined in Section 617 of the Companies Act, 1956.] (4) [9][An authorised dealer
(custodian bank), subject to the directions issued by the Reserve Bank, from
time to time, may issue Irrevocable Payment Commitments (IPCs) in favour of the
Stock Exchanges/Clearing Corporations of the Stock Exchanges, on behalf of
their registered FII clients for purchase of shares and convertible debentures
under the portfolio investment scheme (PIS) notified vide Schedule 2 to Foreign
Exchange Management (Transfer or Issue or Security by a Person Resident Outside
India) Regulations, 2000 (Notification No. FEMA. 20/2000-RB) dated May 3, 2000,
as amended from time to time." Explanation: (i) If
the IPC, which is in the nature of a financial guarantee, is issued prior to
receipt of the required funds from the customer, it will be reckoned for
the computation of Capital Market Exposure of the custodian bank. (ii) Issue of IPCs
should be in accordance with the Reserve Bank regulations on banks' exposure to
the capital market issued by the Reserve Bank from time to time and also comply
with the instructions issued by Department of Banking Operations and
Development, Reserve Bank of India (DBOD), from time to time.] A person other than
an authorised dealer may give a guarantee in the following cases, namely: (a) (i) a person resident
in India being an exporting company may give a guarantee for performance of a
project outside India, or for availing of credit facilities, whether fund-based
or non-fund based, from a bank or a financial institution outside India in
connection with the execution of such project : Provided that the
previous approval for undertaking the project has been duly obtained from the
approving authority in India; [10][(ii) a person
resident in India being an exporter company may give guarantee in lieu
of Bid Bond Guarantee, for bidding for a contract outside India
without the approval of the Approving Authority provided that the amount of
such guarantee shall not exceed 5% of the contract value] Explanation : For the purpose of
this regulation, the approving authority means the authority referred to in
Regulation 18 of Foreign Exchange Management (Export of goods and services)
Regulations, 2000. (b) [11][(i) An Indian Party
promoting or setting up outside India, a Joint Venture (JV) or a Wholly Owned
Subsidiary (WOS), may give a guarantee to or on behalf of the latter in
connection with its business: Provided that the
terms and conditions stipulated in Foreign Exchange Management (Transfer and
Issue of Foreign Security) (Amendment) Regulations, 2004 for promoting or
setting up such company or subsidiary are continued to be complied with: Provided further that
the guarantee under this clause may also be given by an authorized dealer in
India; (ii) An Indian Party
promoting or setting up outside India, a Joint Venture (JV) or a Wholly Owned
Subsidiary (WOS), may give a guarantee to or on behalf of the first generation
step down operating company in connection with its business: Provided that the
terms and conditions stipulated in Foreign Exchange Management (Transfer and
Issue of Foreign Security) (Amendment) Regulations, 2004 for promoting or
setting up such company or subsidiary are continued to be complied with. Explanation: 'Indian
Party' shall have the same meaning as assigned to it in Foreign Exchange
Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations,
2004.] (c) an agent in India of
a shipping or airline company incorporated outside India may give a guarantee
on behalf of such company in connection with its obligation or liability owed
to any statutory or Government authority in India. (d) [12][a bank which, is an
authorised dealer may, subject to the directions issued by the Reserve Bank in
this behalf, permit a person resident in India or on behalf such person to
issue guarantee in favour of an overseas lender or security trustee to secure
an external commercial borrowing availed under the provisions of the Foreign
Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,
2000 (Notification No. FEMA 3/2000-RB, dated 3-5-2000).] (e) [13][a bank which is an
authorized dealer may, subject to the directions issued by the Reserve Bank in
this behalf, permit a person resident in India to issue corporate guarantee in
favour of an overseas lessor for financing import through operating lease
effected in conformity with the Foreign Trade Policy in force and under the
provisions of the Foreign Exchange Management (Current Account Transactions)
Rules, 2000 framed by Government of India vide Notification No. G.S.R. 381(E),
dated May 3, 2000 and the Directions issued by Reserve Bank under Foreign
Exchange Management Act, 1999 from time to time.] [1]
Inserted by the Foreign Exchange Management (Guarantees) (Amendment)
Regulations, 2012 vide Notification No. GSR914(E) dated 30.03.2012 w.e.f.
29.04.2011. [2]
Substituted by the Foreign Exchange Management (Guarantees) (Third Amendment)
Regulations, 2013 vide Notification No. GSR329(E) dated 11.03.2013 w.e.f.
23.05.2013 for the following :- "a company resident in India engaged
exclusively in development of infrastructure (infrastructure defined by the
Reserve Bank from time to time in this regard) and infrastructure financial
companies, as categorized by Reserve Bank from time to time," [3]
Inserted by the Foreign Exchange Management (Guarantees) (Third Amendment)
Regulations, 2012 vide Notification No. GSR917(E) dated 06.12.2012 w.e.f.
26.09.2011. [4]
Inserted by Notification No. GSR 61(E) dated 20.01.2005. [5]
Inserted by the Foreign Exchange Management (Guarantees) (Second Amendment)
Regulations, 2009 vide Notification No. GSR298(E) dated 27.02.2009. [6]
Inserted by the Foreign Exchange Management (Guarantees) (Second Amendment)
Regulations, 2013 vide Notification No. GSR573(E) Dated 05.03.2013. [7]
Inserted by Notification No. GSR 745(E) dated 16.10.2004 [8]
Substituted by the Foreign Exchange Management (Guarantees) (Amendment)
Regulations, 2013 vide Notification No. GSR481(E) Dated 15.02.2013 w.e.f.
05.10.2009 for the following : - "4[(iv) in favour of an non-resident
service provider, on behalf of a resident customer who is a service importer,
for an amount up to USD 100,000 or its equivalent.]" [9]
Inserted by the Foreign Exchange Management (Guarantees) (Amendment)
Regulations, 2012 vide Notification No. GSR914(E) dated 30.03.2012 w.e.f.
29.04.2011. [10]
Inserted by Notification No. GSR575(E) dated 18.03.2002. [11]
Substituted by the Foreign Exchange Management (Guarantees) (Fourth Amendment)
Regulations, 2013 vide Notification No. GSR574(E) Dated 08.05.2013 w.e.f.
27.05.2011 for the following : - "(b) a company in India promoting or
setting up outside India, a joint venture company or a wholly-owned subsidiary,
may give a guarantee to or on behalf of the latter in connection with its
business : Provided that the terms and conditions
stipulated in Foreign Exchange Management (Transfer and Issue of Foreign
Security) Regulations, 2000 for promoting or setting up such company or
subsidiary are continued to be complied with; Provided further that the guarantee under
this clause may also be given by an authorised dealer in India;" [12]
Inserted by the Foreign Exchange Management (Guarantees) (Amendment)
Regulations, 2009 vide Notification No. GSR300(E) dated 03.02.2009 w.e.f.
11.07.2008. [13]
Inserted by the Foreign Exchange Management (Guarantees) (Amendment)
Regulations 2010 vide Notification No. 206/2010-RB dated 01.06.2010.FOREIGN
EXCHANGE MANAGEMENT (GUARANTEES) REGULATIONS, 2000
PREAMBLE