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CS Executive · Economic, Commercial and Intellectual Property Laws · Overseas Direct Investment

An Indian company has made a direct investment abroad and later needs foreign exchange to pay amortisation of a loan or for depreciation of that direct investment in the ordinary course of business. What does the Foreign Exchange Management Act, 1999 provide on this?

The Reserve Bank or the Central Government shall not impose any restrictions on drawal of foreign exchange for payments due on amortisation of loans or for depreciation of direct investments in the ordinary course of business. This protects such ordinary-course payments from capital account limits.

  1. AThe Reserve Bank or Central Government may impose a limit on such drawal
  2. BDrawal is allowed only after the Adjudicating Authority approves it
  3. CThe Reserve Bank or the Central Government shall not impose any restrictions on the drawal of foreign exchange for such paymentsCorrect
  4. DDrawal is allowed only once in a financial year

Explanation

The proviso to section 6(2) states that the Reserve Bank or the Central Government shall not impose any restrictions on drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business. Hence any limit-based or approval-based restriction is wrong.

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