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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Corporate and Economic Laws

Case: Rohini Pharma Ltd, an Indian company, has a foreign promoter, Helix GmbH, holding 60%. Rohini plans to acquire 30% of a Singapore pharma firm for USD 8 million using its own funds and has net worth Rs 500 crore. Under the FEMA (Overseas Investment) framework, which statement is correct for the proposed overseas direct investment?

The investment is permitted under the automatic route, because an Indian entity can make overseas direct investment within its financial commitment limit tied to net worth, which is generally 400 percent. Rohini's foreign promoter does not bar it, and the amount involved is far below the limit.

  1. AIt is prohibited because Rohini has a foreign promoter
  2. BIt is permitted under the automatic route, subject to the financial commitment limit linked to the Indian entity's net worth and sectoral conditionsCorrect
  3. CIt always needs prior RBI approval irrespective of amount
  4. DIt is permitted only through a Government of India notification for each deal

Explanation

Resident Indian entities may make overseas direct investment under the automatic route within the financial commitment limit, which is generally up to 400% of net worth as per the last audited balance sheet, subject to conditions. Foreign ownership of the Indian company does not itself bar ODI. USD 8 million is far below the limit for a company with net worth Rs 500 crore, so approval is not needed.

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