1. Master Circular dated July 01, 2011 issued by RBI vis-à-vis Consolidated FDI Policy Circular 1 of 2011 dated March 31, 2011 Master Circular – Foreign Direct Investment (FDI) in India is: 1. Undertaken in accordance with the FDI Policy (Consolidated FDI Policy Circular) which is formulated and announced by DIPP, Government of India; 2. Governed by the provisions of the Foreign Exchange Management Act (FEMA), 1999 and FEMA Regulations. Consolidated FDI Policy Circular – Reflects the FDI Policy as on April 1, 2011. It subsumes and supersedes all prior policies/regulations on FDI which are contained in FEMA, 1999, RBI Regulations under FEMA, 1999 and Press Notes/Press Releases/Clarifications issued by DIPP. – Any changes notified by RBI from time to time would have to be complied with and where there is a need / scope of interpretation, the relevant FEMA notification will prevail.

2. Inconsistencies between the two: 1. Para 8.B.(iv) of Master Circular: Transfer of shares from NRI to NR or NR to NRI requires the prior approval of the Reserve Bank of India. Not contemplated in FDI Policy. 2. Para 2 of Part II of Master Circular: Foreign investments under Portfolio Investment Scheme: FIIs limit of 24 per cent can be increased to the sectoral cap / statutory limit, as applicable to the Indian company concerned, by passing a resolution of its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior approval from the Reserve Bank. Similarly NRIs aggregate ceiling of 10 per cent can be raised to 24 per cent by passing a resolution of its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior approval from the Reserve Bank. Not contemplated in FDI Policy. 3. Part III of Master Circular: A SEBI registered FVCI can only acquire securities (as given in (ii) above by way of public offer or private placement by the issuer of such securities and not by way of private arrangement with a third party. Not contemplated in FDI Policy. 4. Sector specific policy for FDI in table as Annex 1 to Master Circular is in variance with FDI Policy under para 5.2. Practical Guide : Sector specific policy under FDI Circular shall prevail; whereas procedures and specific requirements for RBI approval would prevail over FDI Policy.

3. Practical Issues 1. Additional allocation of rights share by residents to non- residents : Whether non-existing non-resident shareholders allowed to apply for issue of additional shares / convertible debentures / preference shares over and above their rights share entitlements? Response: No. 2. Acquisition of shares under Scheme of Merger/Demerger/Amalgamation of companies in India (under FDI Policy) Acquisition of shares under Scheme of Merger / Amalgamation of companies in India (Under Master Circular) Response: Section 391-394 of Companies Act refers to as Reconstruction (compromise or arrangement) and amalgamation. So long as it is governed by an order issued by a competent Court on the basis of the Scheme; would fall under FDI Policy.

4. Practical Issues 3. Reimbursement of Pre-incorporation expenses under Schedule III of FEM Current Account Transactions Rules, and for Issue of equity shares against Pre-operative/ pre-incorporation expenses under FDI Policy contemplate verification and certification of such expenses by the statutory auditor. Response: Pre-operative/ pre-incorporation expenses have same meaning as accepted in accounting parlance. 4. FDI in retail trade of Single Brand products permitted from foreign investor who is not owner (but franchises) of the international brand? Response: In the past DIPP has rejected cases where foreign investor (or its group/holding company) was not the owner of the international brand. Franchises of international brands not allowed.

5. Practical Issues 5. Operating Lease and Finance Lease : NBFC activities under FDI Policy- Whether permitted? Response: Allowed under category Leasing & Finance subject to minimum capitalisation. Operating Lease is not an NBFC activity. Only 18 activities listed under FDI Policy are permitted under Automatic Route. Primary Dealership, Mortgage Guarantee Company, and Commodity Brokerage are separate categories requiring FIPN approval. 6. Defence Sector : What is covered? Response: Refer Defence Procurement Policy issued by Ministry of Defence which has identified List of Defence Products (includes Software specially designed or modified for the development production or use. This includes software specialty designed for modeling, simulation or evaluation of military weapon systems, modeling or simulating military operation scenarios).

6. Practical Issues 7. Wholesale Trading : Whether trading through Super Bazar and Defence Canteen allowed? Response: Yes; being sale of goods/merchandise to retailers, commercial, institutional users, as opposed to sales for the purpose of personal consumption. 8. Warrants and partly paid shares can be issued to person/ (s) resident outside India only after approval through the Government route. Terms & conditions? Response: Partly paid shares: 50% upfront first payment and full payment in 6 months from the date of issue. Warrants: upfront payment of 25% and conversion in 12 months. Post facto approvals for previous defaults. Grace period of 3 months being granted for cases outside stipulated time frame.