Indo Japan Trade and Investment Bulletin, july 2014

2014
Indo-Japan Trade & Investment
Bulletin
July Issue
Japan Desk, Corporate Professionals

Indo-Japan Trade & Investment Highlights
 Daido Steel to buy stake in India’s Sunflag
 Foreign companies manufacturing in India can sell directly to online customers
 Indians to 'guide' Nissan in car making
 India may soon sign first bilateral advance-pricing pact with Japan
 India’s Tide Water Oil Co signs JV with JX Nippon Oil & Energy Corp
 Panasonic to launch e-stores in India
 Mitsubishi bets big investment on India
 Japan’s Dentsu Aegis buys controlling stake in India’s Milestone Brandcom
 Japan's SBS Holdings Buys India’s Transpole Logistics
 Japan may finance Mumbai Trans-Harbour link
 JBIC invests $10.5M in Takshasila Hospitals
Knowledge Centre
 Transfer of shares under FEMA Regulations
INDEX

Daido Steel to buy stake in India’s Sunflag
Japan based Daido Steel Co. will buy 10 percent stake in Sunflag Iron & Steel Co. for around Rs
55.86 crore ($9 million approx..) through a preferential allotment to strengthen its presence in
India. The two firms signed a share subscription agreement whereby the Japanese firm will be
allotted 18 million shares at Rs 31 each. The investment is a part of expansion plan of the Indian
operations of Daido after taking into consideration that India’s automobile market is growing at a
fast pace. The two companies also entered into a technical assistance partnership in November
2010. Daido has been providing advice and support to Sunflag on capital investment. Now, Daido
plans to buy the shares in Sunflag via third-party allotment. Daido expects that the Indian specialty
steel market will see significant growth amid increasing domestic demand for automobiles and
motorcycles and is also likely to grow as an export base.
Foreign companies manufacturing in India can sell directly to online customers
Foreign companies manufacturing in India will be allowed to engage in e-commerce retail sale
even if they source products from third-party producers in the country. This comes as good news
to brands such as Samsung, LG, Panasonic and Lenovo as they may now sell directly online to
customers in India. But foreign companies that arrived in India as retailers will not be allowed to
do so. Foreign direct investment (FDI) in the manufacturing sector in India was in the automatic
approval list and now, foreign companies manufacturing in India would be allowed to sell their
products through retail, including e-commerce platforms, without any additional clearance from
the government. Sony has been exploring the possibility of setting up a manufacturing plant in
India. It is expected that now, it could get expedited with the budget announcement proposal.
Further, for electronics firms that have already invested a few thousand crores of rupees in India
Panasonic, the development is a welcome one. Panasonic India Managing Director Manish Sharma
Indo-Japan Trade & Investment Highlights

welcomed this development and said that they can now showcase their products which are
manufactured in India, such as laptops and desktops, with full details.
Indians to 'guide' Nissan in car making
Japanese auto giant, Nissan, has revamped its strategies for India to make a renewed pitch. It is
developing three new vehicles for global markets and the centre of all these development processes
is not an American, European or Chinese consumer but an Indian one. Till now, the company has
had small presence in the Indian market, with a market share of only 1.5 per cent. Nissan has
invested more than Rs 15,000 crore ($2.5 billion) in India along with Renault, Nissan aims to take
on Maruti Suzuki, Hyundai, Mahindra & Mahindra. According to data from the Society of Indian
Automobile Manufacturers Nissan clocked 3 % growth in sales at 38,220 units last year. The
company is looking at doubling volumes in India.
India may soon sign first bilateral advance-pricing pact with Japan
Indian tax authorities are soon expected to sign their first bilateral advance-pricing agreements
(APAs) with Japanese trading companies. These agreements are aimed at avoiding conflicts with
multinational companies over sharing of taxes between India and the countries where these firms
are based. Tax officers often dispute pricing of transactions between related parties. Bilateral APAs
give certainty that the price declared using the agreed approach won't be frowned upon in either
of the countries concerned. An official from finance ministry said that the Japanese delegation
came to India in April and an Indian delegation will go to Japan next month and the first bilateral
APA might be signed soon. Bilateral APAs are likely to be signed in sectors like information
technology, consumer electronics, telecommunications and manufacturing. General trading
companies of Japan, called Sogo Shosha, are eager on finalizing the agreements as soon as possible
so that their investments in India have tax certainty.
India’s Tide Water Oil Co signs JV with JX Nippon Oil & Energy Corp
Tide Water Oil Co, a lubricant manufacturing company of India and a member of the Andrew
Yule Group, recently entered into an agreement with Japan's JX Nippon Oil & Energy Corp to
form a joint venture company in India by the name of JX Nippon TWO Lubricants India. JX

Nippon Oil & Energy Corp is Japan's largest oil company with interests in refining, manufacturing
and selling petroleum products, and in the energy sector. Tide Water Oil is one of the leading
players in the Indian lubricant industry. It manufactures and markets Veedol brand of lubricants.
Both companies are proposed to have equal stake in the Joint Venture entity. The joint venture
will sell, market, distribute and manufacture the 'Eneos' brand of lubricants in India, Nepal,
Bangladesh and Bhutan. It will also be responsible for the Genuine Oil requirements of the
Japanese and Korean equipment manufacturers in the automotive and industrial segments.
In 1993, Tide Water Oil had entered into a technical collaboration with Mitsubishi Oil Co to market
its lubricants in India. This partnership continued with Nippon Oil Corp when it merged with and
absorbed Mitsubishi Oil in the year 1999.
Panasonic to launch e-stores in India
Japanese major Panasonic Corp. plans to start selling its products directly to its Indian consumers
through “E-Store” after the Indian government in the Union budget 2014 announced its plan to
allow the foreign manufacturers to take up the online route. Taking into consideration the
increasing trend of online shopping in India, Panasonic will launch ‘Panasonic’s e-store’, where
the company will showcase its range of products. The e-store will showcase on the portal its
products such as kitchen and home appliances, washing machines and air conditioners
manufactured in India. Several factors such as large customer base, increasing penetration of
Internet connectivity and growing popularity of online shopping across cities have led to the
growth of online retailing in India. It is expected to help the company expand its reach, speed and
certainty of delivery to consumers and also with new demand insights that can be mined and used
for enhancing sales.
Mitsubishi bets big investment on India
Japan’s Mitsubishi Corporation is seeking Indian expertise and has major investment plans for
India. Mitsubishi president and CEO, Ken Kobayashi is keen to discuss with the Indian Prime
Minister, Narendra Modi and his key cabinet ministers. Apart from a joint venture with TCS,
Mitsubishi is looking for an Indian partner to launch light commercial vehicles in India. In
addition, Mitsubishi is also looking to import shale gas-based liquefied natural gas into India,

which a segment is having a lot of demand attributing to the low production levels in India. Further,
Kobayashi also plans to discuss possible investments in the Delhi-Mumbai and Chennai-Bangalore
industrial corridors. At present, the company has a tie up to sell its vehicles in India in partnership
with Hindustan Motors.
Japan’s Dentsu Aegis buys controlling stake in India’s Milestone Brandcom
Japan’s Dentsu Aegis Network acquired majority stake in India’s Milestone Brandcom, which is
one of the biggest out-of-home agencies in India. Dentsu Aegis Network is on the edge of
becoming a leading player in the Out-of-Home (OOH) market in India after the acquisition of
Milestone Brandcom, along with Posterscope. Milestone Brandcom is one of the fastest growing
outdoor media agencies in India and is also the largest OOH company on the bases of billings.
Nabendu Bhattacharyya will continue as CEO and Managing Director of Milestone Brandcom.
CEO of Dentsu Aegis Network Asia Pacific, Nick Waters welcoming Nabendu and the team to
the company, said that the acquisition is a significant step for the company to build a high quality
and scaled group in India.
Japan's SBS Holdings Buys India’s Transpole Logistics
Tokyo based SBS Group is acquiring majority stake in Delhi (India) based logistic services
provider Transpole Private Limited for USD 73.5 million. The acquisition would enable SBS to
get access to Transpole’s resources and channels in India, China, Hong Kong, Korea, Malaysia
and South East Asia. The Japanese company would be acquiring 66% shares in Transpole. The
company would be acquiring shares of Everstone, Fidelity and part of the holding of founding
members of the company providing an exit to existing PE investors of the Indian company. Fidelity
had invested INR 600 million in the year 2011 and Everstone had invested INR 2,200 million in
the year 2013. As a part of the acquisition, the entire preferred stock of the Indian company would
be converted to common stock which would give SBS Holdings a 66% holding in the company
along with common stock acquired from the founders.

Japan may finance Mumbai Trans-Harbour link
The Japanese International Cooperation Agency (JICA) may provide up to 80 percent loan to the
Maharahstra government's Mumbai Trans Harbour Link (MTHL) project. Mumbai Metropolitan
Region Development Authority (MMRDA) is implementing the mega-infrastructure project and
an expert team from the Japan International Cooperation Agency visited Mumbai for discussing
various issues. MMRDA Metropolitan Commissioner U.P.S. Madan said that the Japanese
International Cooperation Agency team has given favourable indications over financing the MTHL
and out of the total estimated cost of Rs.11,000 crore ($1.8 billion), they are expected to lend
almost 80 percent, or Rs.8,800 crore to the project. A preliminary survey has also been carried out
by Japanese International Cooperation Agency of the end points of the 22 km long MTHL. JICA
will now work out several aspects of the project in detail and provide MMRDA with inputs to
enhance constructability and shorten the construction period of the project.
JBIC invests $10.5M in Takshasila Hospitals
Japanese government controlled financial institution, Japan Bank for International Cooperation
(JBIC) has invested Rs 63 crore ($10.5 million) in India-based Takshasila Hospitals Operating Pvt
Ltd. Takshasila Hospitals is a joint venture between Japanese hospital chain operator Secom
besides Toyota Tsusho Corporation and Kirloskar Group. Takshasila Hospitals runs a Bangalore-
based multi-super specialty hospital under the banner of Sakra World Hospital. JBIC has invested
through compulsorily convertible preference shares issued by Takshasila Hospitals. In the recent
past, Hospitals chains have been attracting private equity firms with various deals.

FEMA: Transfer of Shares under FEMA Regulations
In terms of Section 2 (ze) of Foreign Exchange Management Act, 1999 (FEMA) "Transfer"
includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of
right, title, possession or lien. Transfer of shares by a person resident in India to person resident
outside India, as well as the transfer of shares by a person resident outside India to a person resident
in India is a capital account transaction. In terms of Section 6(3) of the Foreign Exchange
Management Act, 1999, the Reserve Bank of India (RBI) has the power to make regulations to
prohibit, restrict or regulate the transfer of shares.
Position in the Past:
Prior to the enactment of FEMA, the transfer of shares of an Indian company by a non-resident
person to another non-resident person did not require confirmation from RBI. However, the
transfer of shares of an Indian company by a non-resident person to a resident person required
confirmation from the RBI. The transfer of shares of an Indian company by a person resident in
India to a person resident outside India required the permission of the Government of India
followed by the approval of RBI.
Developments over time:
The above provisions of transfer of shares from non-resident to non-resident, from non-resident to
resident and from resident to non-resident continued up to 29.09.2004, when the Ministry of
Finance simplified foreign investment procedures. As per the Press Release dated 29.05.2004
issued by Ministry of Finance, permission of Government of India was not required for transfer of
shares from a resident to a non-resident. In other words, from 29.09.2004, only RBI approval was
required for transfer of shares by resident to non-resident. After this simplification, RBI approval
was still required in two cases of transfer of shares: (i) for transfer of shares by a non-resident to a
Knowledge Center

resident, and (ii) for transfer of shares by resident to non-resident. This means that for any transfer
of shares between a resident and a non-resident, only RBI approval was required.
Within a few days of the above Press Release of Ministry of Finance simplifying the investment
procedures, RBI came out with an A.P. (DIR Series) Circular No. 16 dated 04.10.2004, further
simplifying the procedure of transfer of shares. In terms of the above Circular, RBI granted general
permission for transfer of shares/convertible debentures by way of sale under private arrangement,
both from residents to non-residents, as well as from non-residents to residents, subject to pricing,
documentation, payment/receipt and remittance in respect of the shares/convertible debentures and
reporting requirements. This general permission, however, was not granted for transfer of
shares from resident to non-resident in financial service sector (i.e. banks, NBFCs and
insurance).
After the simplification of procedure in 2004, prior permission of RBI was required for transfer of
shares by way of gift from a resident to a non-resident. Further, in case of transfer of shares of an
Indian company engaged in financial sector (i.e. banks, NBFCs and insurance), and transactions
which attract the provisions of SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997, etc., by way of sale from a resident to a non-resident, the transferor was
required to obtain prior approval of FIPB, Ministry of Finance & Company Affairs, Government
of India followed by permission from RBI. The above two stage approvals were applicable even
when the transfer was made on non-repatriation basis.
Present Position:
Present guidelines governing transfer of shares as contained in the Foreign Exchange Management
(Transfer or Issue of Securities by a Person Resident Outside India) Regulations, 2000 are as
follows:
1. A non-resident (other than NRI and erstwhile OCB) may transfer shares to any other non-
resident (including NRIs but excluding erstwhile OCBs), by way of sale or gift.
2. NRIs may transfer the shares to another NRI, by way of sale or gift.
3. A non-resident can transfer any security to a person resident in India by way of gift.

4. A non-resident can sell the shares on a recognized Stock Exchange in India through a stock
broker or a merchant banker registered with SEBI.
5. A non-resident can sell shares by private arrangement to a resident. Price for transfer of
existing shares by non-resident to resident shall not be more than the minimum price at
which the transfer of shares can be made from a resident to a non-resident.
6. A resident can sell shares (including transfer of subscriber‘s shares), of an Indian company
under private arrangement to a non-resident.
7. The general permission for sale of shares by resident to non-resident and by non-resident
to resident under private placement also covers transfer by a resident to a non-resident of
shares/convertible debentures of an Indian company, engaged in an activity earlier covered
under the Government Route but now falling under Automatic Route, as well as transfer
of shares by a non-resident to an Indian company under buyback and/or capital reduction
scheme of the company.
8. The Form FC-TRS has to be submitted to the AD Category-I Bank, within 60 days from
the date of receipt of the amount of consideration. The onus of submission of the Form FC-
TRS within the given timeframe would be on the transferor/transferee, resident in India.
The sale consideration of the shares purchased by a non-resident, remitted into India through
normal banking channels, shall be subjected to a Know Your Customer (KYC) check, and the
KYC report has to be submitted by the customer to the AD Category-I bank carrying out the
transaction along with the Form FC-TRS.
The following cases require prior approval of RBI
(i) Transfer of shares from resident to non-residents by way of sale where:
 Transfer is at a price which falls outside the pricing guidelines specified by the Reserve
Bank from time to time.
 Transfer of shares where the non-resident acquirer proposes deferment of payment of the
amount of consideration. Further, in case approval is granted for a transaction, the same
should be reported in Form FC-TRS, to an AD Category-I bank for necessary due

diligence, within 60 days from the date of receipt of the full and final amount of
consideration.
(ii) Transfer of shares by way of gift by a resident to a non-resident
Reserve Bank considers the following factors while processing such applications:
 The proposed transferee (donee) is eligible to hold such capital instruments under
Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time,
 The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series
of debentures/each mutual fund scheme.
 The applicable sectoral cap limit in the Indian company is not breached.
 The transferor (donor) and the proposed transferee (donee) are Relatives as defined under
Companies Act, 1956.
Please note that major provisions of Companies Act, 1956 has been repealed and replaced
by Companies Act, 2013 and the meaning and definition of Relative has been provided
under Section 2(77) of Companies Act, 2013 read with Rule 4 of Companies (Specification
of definitions details) Rules, 2014, which are in force as on date.
 The value of shares to be transferred together with any shares already transferred by the
transferor, as gift, to any person residing outside India does not exceed the rupee equivalent
of USD 50,000 per financial year.
 such other conditions as stipulated by Reserve Bank in public interest from time to time.
(iii) Transfer of shares from NRI to non-resident.
(iv) Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve
Bank of India.

In the following cases, approval of RBI is not required:
A. For transfer of shares by way of sale under private placement from a Non-Resident to Resident
under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that:-
i. The original and resultant investment comply with the extant FDI policy and FEMA regulations
in terms of sectoral caps, conditionality (such as minimum capitalization, etc.), reporting
requirements, documentation, etc.;
ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI
regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/
substantial acquisition / SEBI SAST, buy back); and
iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI
regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD
bank.
B. Transfer of shares from Resident to Non Resident:
i) where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy
provided that :
 the requisite approval of the FIPB has been obtained; and
 the transfer of share adheres with the pricing guidelines and documentation requirements
as specified by the Reserve Bank of India from time to time.
ii) where the transfer of shares attract SEBI (SAST) guidelines subject to the adherence with the
pricing guidelines and documentation requirements as specified by Reserve Bank of India from
time to time.

iii) where the transfer of shares does not meet the pricing guidelines under the FEMA, 1999
provided that:
 The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in
terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting
requirements, documentation etc.;
 The pricing for the transaction is compliant with the specific/explicit, extant and relevant
SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit,
open offer/ substantial acquisition / SEBI SAST); and
 Chartered Accountants Certificate to the effect that compliance with the relevant SEBI
regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with
the AD bank.
iv) where the investee company is in the financial sector provided that:
 NOCs are obtained from the respective financial sector regulators/ regulators of the
investee company as well as transferor and transferee entities and such NOCs are filed
along with the form FC-TRS with the AD bank; and the FDI policy and FEMA regulations
in terms of sectoral caps, conditionalities (such as minimum capitalization, pricing, etc.),
reporting requirements, documentation etc., are complied with.
Shares purchased by NRIs and FIIs on the stock exchange under PIS cannot be transferred by way
of sale under private arrangement or by way of gift to a person resident in India or outside India
without prior approval of the Reserve Bank. However, NRIs can transfer shares acquired under
PIS to their Relatives as defined under Companies Act, 1956 or to a charitable trust duly registered
under the laws of India without obtaining prior approval of the Reserve Bank.
Please note that major provisions of Companies Act, 1956 have been repealed and replaced by
Companies Act, 2013 and the meaning and definition of Relative has been provided under Section
2(77) of Companies Act, 2013 read with Rule 4 of Companies (Specification of definitions details)
Rules, 2014, which are in force as on date.

All parties involved in the transaction would have the responsibility to ensure that the relevant
regulations under FEMA are complied with and settlement of transactions will be subject to
payment of applicable taxes, if any.
DISCLAIMER:
The document has been prepared and produced only for the information purpose only and is not to be construed as an advertisement, solicitation,
invitation, personal communication or inducement of any kind by the firm, the author or any of its partner or associates. The entire content of this
document has been developed on the basis of relevant statutory provisions and as per the information available at the time of the preparation.
Though the author has made utmost efforts to provide authentic information, however, the material contained in this document does not
constitute/substitute professional advice that may be required before acting on any matter. The author and the firm expressly disclaim all and any
liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be
done by any such person in reliance upon the contents of this document.

CONTACT US
PANKAJ SINGLA
Japan Desk, Corporate Professionals
NEW DELHI
D-28, South Extension Part - I, New Delhi
– 110049
Tel: +91-11-40622200
Dir: +91-11-40622293
Fax: +91-11-40622201
Mob:+91-99715-08320
Email: pankaj@indiacp.com
MUMBAI
Mastermind- I, Royal Palms Estate, Aarey Colony,
Goregaon (East), Mumbai -400065
Tel: +91 9820079664
Fax: +91 9810037390
BEDFORD (UNITED KINGDOM)
2-4 Mill Street, Bedford MK40 3HD U.K.
Tel: +44 (0) 2030063240
Fax: +44 (0) 2030063241

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Indo Japan Trade and Investment Bulletin, july 2014