CA Alka Bhardwaj –
Foreign Investment means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP.
Foreign Direct Investment (FDI) is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company; or (b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
Procedure for receiving Foreign Direct Investment in an Indian company:
An Indian company may receive Foreign Direct Investment under the two routes as given under:
a) Automatic Route
b) Government Route
FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors.
The Indian company having received FDI either under the Automatic route or the Government route is required to report in the Advance Reporting Form, the details of the receipt of the amount of consideration for issue of equity instrument through an AD Category –I Bank, together with copy/ ies of the FIRC evidencing the receipt of inward remittances along with the Know Your Customer (KYC) report on the non-resident investors from the overseas bank remitting the amount, to the Regional Office concerned of the Reserve Bank of India within 30 days from the date of receipt of inward remittances.
Further, the Indian company is required to issue the equity instrument within 180 days, from the date of receipt of inward remittance or debit to NRE/FCNR (B) account in case of NRI/ PIO.
After issue of shares / fully and mandatorily convertible debentures / fully and mandatorily convertible preference shares, the Indian company has to file the required documents along with Form FC-GPR with the Regional Office concerned of the Reserve Bank of India within 30 days of issue of shares to the non-resident investors.
Investment by a person resident outside India is prohibited in the following sectors:
- Lottery Business including Government/ private lottery, online lotteries.
- Gambling and betting including casinos.
- Chit funds (except for investment made by NRIs and OCIs on a non-repatriation basis).
- Nidhi company.
- Trading in Transferable Development Rights (TDRs).
- Real Estate Business or Construction of Farm Houses.
- Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. The prohibition is on manufacturing of the products mentioned and foreign investment in other activities relating to these products including wholesale cash and carry, retail trading etc. will be governed by the sectoral restrictions laid down in Regulation 16 of FEMA 20(R).
- Activities/ sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations
- Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.
Procedure to be followed after investment is made under the Automatic Route or with Government approval:
A two-stage reporting procedure has to be followed:
- On receipt of share application money:
Within 30 days of receipt of share application money/amount of consideration from the non-resident investor, the Indian company is required to report to the Regional Office concerned of the Reserve Bank of India, under whose jurisdiction its Registered Office is located, the Advance Reporting Form, containing the following details:
- Name and address of the foreign investor/s;
- Date of receipt of funds and the Rupee equivalent;
- Name and address of the authorised dealer through whom the funds have been received;
- Details of the Government approval, if any; and
- KYC report on the non-resident investor from the overseas bank remitting the amount of consideration.
Note:- Upon SMF implementation, the two-step reporting procedure of FDI i.e. submission of ARF and FC-GPR separately has been merged into a single revised FC-GPR. So, FC-GPR can be filed directly on SMF without any submission of ARF.
- Upon issue of shares to non-resident investors:
Within 30 days from the date of issue of shares, a report in Form FC-GPR- PART A together with the following documents should be filed with the Regional Office concerned of the Reserve Bank of India.
- Copy of FIRC (Foreign Inward Remittance Certificate)
- Copy of KYC (Know Your Customer) report of the remitter.
- Declaration by authorized representative of the Indian Company as per format provided in SMF- user manual.
- CS Certificate as per format given in the RBI user manual stating that all requirements have been complied with.
- Valuation Report by Chartered Accountant/Merchant Banker indicating the manner of arriving at the price of the capital instruments issued to the person resident outside India.
- Copy of FIPB approval (if required)
- Board Resolution for the allotment of securities along with the List of Allottees.
- Letter of Debit Authorization.
- Declaration for conversion of CCPS
- Pricing guidelines declaration
- Reason for any delay in submission, if required.
Following point should be remembered before filling FC-GPR
- The transaction being reported in Form FC-GPR is for Issue of capital instruments by an Indian Company to a person resident outside India.
- Check whether the capital instruments viz. Equity shares/Compulsorily Convertible Preference Shares/Compulsorily Convertible Debentures are only issued.
- The FDI has come through-
1. By inward remittance through normal banking channels; or
2. By debit to NRE/FCNR account of the person concerned maintained with an authorized dealer.
- Whether FIRC Copies and KYC report has been issued by Authorized dealer bank of the nonresident investor.
- In case, if amount is received from NRE account then instead of FIRC Bank has issued NRE letter
- The applicant reporting for the transaction has Registered for Entity User and for Business User in Single Master Form at FIRMS Portal.
- The securities are allotted within in 60 days from the date of receipt of application money.
- Return of Allotment in Form PAS-3 is filed within 30 days from allotment.
- Share Certificates have been issued and Register of Members is updated.
What are the documents to be attached at the time of Entity User and Business User registration?
Entity User:
1. The authorisation letter as per the Entity Master User Manual. (https://firms.rbi.org.in/firms/)
2. PAN Card of the Entity User
3. Company declaration by mentioning the reasons for not being able to complete the entity user registration process during the initial window from Jun 28 to Jul 20, 2018
Business User:
1. The authorisation letter as per the Firms User Manual. (https://firms.rbi.org.in/firms/)
2. PAN Card of the Business User.
Indian company should issue equity instruments within 60 Days from the date of receipt of inward remittance.