XYZ Ltd. is a reputed Indian construction company, which has its operations in multiple countries. The company has earned foreign exchange of USD…

Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 provides that every drawal of foreign exchange for transactions included in Schedule III shall be governed as provided therein. The proviso to the Rule 5 further states that this rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter. Facilities for persons other than individual S. No. 2 of Schedule III states that prior approval of the Reserve Bank of India is required in case of persons other than individuals, where donations exceed, one per cent. of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for: a. creation of Chairs in reputed educational institutes, b. contribution to a technical institution or body or association in the field of activity of the donor Company. In the given case, XYZ Limited can make the maximum donation of USD 5 Million(M) [Lower of {1% of (200M+300M+400M)} or {5M}]. The company is intending to donate USD 4 Million as a contribution to a technical institution in USA and USD 3 Million for creation of a chair, which would amount to USD 7 Million in total. As the company is allowed in aggregate a maximum of USD 5 Million, it is required to take prior approval of the Reserve Bank of India. Therefore, the opinion of the directors is not correct. XYZ Ltd. cannot make the above remittances without obtaining prior approval of the Reserve Bank of India.