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What is ‘financial commitment’?

What is ‘financial commitment’?

Financial commitment means the amount of direct investments outside India by an Indian Party –

  1. by way of contribution to equity shares or CCPS of the JV / WOS abroad
  2. contribution to the JV / WOS as preference shares (for reporting purpose to be treated as loan)
  3. as loans to its the JV / WOS abroad
  4. 100% of the amount of corporate guarantee issued on behalf of its overseas JV/WOS and
  5. 50% of the amount of performance guarantee issued on behalf of its overseas JV/WOS.
  6. bank guarantee/standby letter of credit issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party
  7. Creation of charge (pledge / mortgage / hypothecation) on the movable / immovable property or other financial assets of the Indian party / its group companies

An undertaking to commit substantial expenditure at a future date. Such pledges are deemed liabilities and must be shown as such in the firm’s balance sheet (as accompanying notes or footnotes) even if the expense has not yet been incurred to have become an actual liability.


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