FEMA Compliance: A Two-Decade Odyssey of Missing APRs — A Company Secretary’s Real-Life Case Study

FEMA Compliance: A Two-Decade Odyssey of Missing APRs — A Company Secretary’s Real-Life Case Study

Every organisation has a compliance story — and sometimes the most revealing ones are buried in the filings that were never made. For a Company Secretary, filing an APR each year becomes a matter of discipline, routine and responsibility, yet a single lapse — even one forgotten in the past — can return unexpectedly and unfold into a compliance storm beyond imagination. These are the moments that test us, but they are also the experiences that shape us into resilient professionals. Because sometimes, one FEMA oversight is all it takes for a routine assignment to transform into an unforgettable professional journey.

One such experience in my career—an episode I often say I will narrate to my grandchildren—was the task of resolving almost two decades of non-filing of Annual Performance Reports (APRs) for an overseas subsidiary. What seemed like a minor gap eventually unfolded into a deep, multi-layered compliance challenge requiring extensive research, professional collaboration, and a commitment to uphold the spirit of the law.

Upon joining ABC Ltd. (fictional name), I was assigned the responsibility of clearing historical compliance issues. During a due-diligence review, I discovered that the company was involved in a long-pending DRT matter linked to a Hong Kong subsidiary. A One-Time Settlement was in progress, but remittances were repeatedly blocked by the RBI with the remark:

“RBI non-compliance: requisite filings not completed.”

That short RBI remark quietly opened the door to a compliance labyrinth we did not yet realise we were about to navigate. During the investigation, I realised that APRs had not been filed for years — a gap that had silently grown into the very reason for the remittance rejection.

To get to the bottom of the matter, we had to trace the corporate history from the very beginning and understand how each shift had eventually led to the DRT case.

Where the Compliance Complexity Began: The Corporate Shifts

What appeared simple at first turned out to be a long trail of structural changes across entities:

Over these years, parent entities changed multiple times, documentation was lost (due to statutory retention limits), bank accounts were closed, and remittance records became untraceable—creating a perfect compliance storm.

From Liquidation to Litigation: The Compliance Fallout

During liquidation, the corporate and personal guarantees were called upon, as the liquidator sought to recover the shortfall from the Indian company and the resident individual guarantors. To settle these dues, an outward remittance was required; however, the remittance was repeatedly rejected due to non-filing of APRs and FLA returns.

Since the funds could not be remitted, the overseas lenders initiated legal action in India, resulting in a legal battle that stretched on for years. One hearing led to another — court dates, interim orders, appeals, and repeated proceedings before the DRT — until the case became a constant presence in the organisation’s life. That was the turning point, the moment it became undeniably clear that the price of non-compliance is always higher than the cost of compliance.

This was the same DRT matter that marked the beginning of our present compliance exercise. Although the company was willing to settle the outstanding dues, it remained unable to do so because the regulatory filings required for remittance were not in place. We thought the struggle had already reached its peak, but reality had something else planned — the most demanding and defining chapter of this compliance journey was only just beginning.

The APR Discovery: Three Filings Buried in a Maze of Time and Compliance

Upon reviewing the Detailed Project Profile, it was discovered that only three APRs had ever been filed and recorded, leaving the remaining years entirely unreported.

All other years APR fillings—from 1994–2000, 2002–2006 and 2008 -2012 —were missing.

This discovery placed a substantial responsibility on the compliance team and required a comprehensive restoration effort involving:

• Reconstruct two decades of financial information,
• Prepare missing APRs,
• File back-dated FLA returns, and
• Regularise the overall project profile, including guarantees, remittances, and inflows.

It was at this point we realised that we were not just rebuilding filings — we were retracing an entire corporate history piece by piece.

Reconstructing Missing Years of Data: A Professional Thriller

With minimal internal documentation available, extensive research was undertaken using:

To reconstruct the missing compliance trail, we turned to every possible secondary source of information. Public documents were retrieved from the MCA portal and certified true copies were obtained from the ROC, while archived filings were accessed through BSE and NSE records since one of the predecessor companies has been listed. Historical annual reports and segment-wise disclosures helped rebuild the financial chronology, further supported by consolidated financial statements of the Indian parent entities. Legacy backup records of the overseas subsidiary also provided critical details wherever primary documentation was unavailable.

Piece by piece, we were stitching together a compliance history that time itself had almost erased — from:

• Outward ODI transactions;
• Dividend and other inflow details;
• Details of guarantees that were called upon;
• Remittance timelines; and
• Investment schedules

As suggested by the professionals and the AD Bank, we prepared APRs for 2008–2012, got them certified by the statutory auditors, and submitted them for further processing. However, the AD Bank refused to accept the filings without the corresponding FLA returns.

After completing and submitting all pending years FLA returns, another query arrived — this time from the AD Bank Head Office — directing us to file APRs for 1994–2000 and 2002–2006 as well. It felt like every milestone we crossed only unlocked another layer of hidden compliance, as though the finish line kept moving further each time we got closer.

This required reconstructing financials of multiple predecessor companies — even those that had long ceased to exist. B Ltd. had already exited not only the business landscape but also the ROC records, disappearing from all regulatory trace.

And as we continued peeling back the layers, each one reminded us how far this journey still had to go — we were no longer just tracing documents; we were chasing history.

The Compliance Breakdowns Hidden in the Project Profile and Financial Disclosures

1. Change of Parent Company:

No records were available for the transfer of the overseas subsidiary from B Ltd. to C Ltd. This included the absence of board resolutions, journal entries, or supporting documentation. The Detailed Project Profile continued to reflect B Ltd. as the parent company, indicating that no reporting or documentation of the transfer from B Ltd. to C Ltd. had been undertaken.

2. Dividend Inflows:

The audited financial statements of both the Hong Kong subsidiary and the Indian holding companies confirmed that dividends had been declared by the subsidiary and recognised as income by the parent entities. This was evident from the notes to accounts and other income schedules. However, key supporting documents—such as FIRCs, KYC documents, and proof of inward remittances—were missing, making it difficult to establish compliance under FEMA.

3. Guarantees

No documentation was available to verify whether the corporate guarantees issued in favour of the overseas subsidiary had expired or continued to remain in force. The absence of correspondence or closure confirmations created uncertainty regarding the status of these guarantees.

4. Loan-to-Equity Conversions:

The subsidiary’s audited financial statements indicated an increase in share capital in 2004, arising from the conversion of loans into equity. This resulted in an increase in the Indian parent’s shareholding. However, no records could be traced regarding the RBI reporting or approvals for this transaction, and no documentation existed within the Indian company’s files to substantiate the conversion.

5. Previously Filed APRs:

Although APRs for 1993 and 2001 had been filed in earlier years, neither the company nor the AD Bank possessed copies of those filings. This created challenges in reconciling opening and closing balances while preparing APRs for subsequent years and raised the risk of inconsistency in reported figures.

6. Mismatch in Financial Year:

The Hong Kong subsidiary followed a January–December financial year, whereas the Indian entities followed the April–March cycle. This mismatch made reconciliation and APR preparation more complex, particularly for years with insufficient supporting data.

7. Overall Lack of Supporting Documents:

Only limited secondary evidence was available for the reconstruction process. No primary documents—such as FIRCs, KYCs, bank statements, remittance proofs, or RBI acknowledgements—were traceable. The only reliable source was the audited financial statements of the Indian parent companies, which contained the subsidiary’s financials as part of statutory disclosure requirements.

Fixing the Unfixable: The Compliance Revival Plan

A transparent and legally defensible approach was adopted, firmly grounded in FEMA principles. The objective was not merely to complete filings, but to restore the entire regulatory trail with integrity and documentary credibility. The resolution process unfolded through carefully structured corrective actions:

1. Missing Transfer Documentation

A notarised affidavit was executed detailing the entire transfer history of the overseas subsidiary, the non-availability of supporting records, and the basis on which historical data had been reconstructed.

2. Dividend Inflow Evidence

In the absence of primary remittance documents, audited annual report extracts and statutory auditor certificates were attached along with affidavits confirming reliance on audited financial statements.

3 & 4. Guarantees and Loan Conversions

A separate application was filed to update and close the guarantees reflected in the project profile. Loan-to-equity conversions were disclosed in APRs with supporting auditor validation and formal management declarations.

5. Previously Filed APRs

APRs for the earlier years were recreated using available secondary disclosures, accompanied by a declaration acknowledging incomplete archival records and outlining the methodology adopted for reconstruction.

6. Financial Year Alignment

APRs were prepared in accordance with the subsidiary’s January–December financial year, and an additional short-period APR was filed to ensure complete alignment with Indian reporting requirements.

7. Supporting Documentation

Each APR submission was fortified with statutory auditor certificates, explanatory notes, excerpts from annual reports, and sworn affidavits wherever primary documents were unavailable.

Multiple rounds of queries from the RBI and the Authorised Dealer Bank were handled methodically, with reasoned responses backed by documentary evidence. The matter has now progressed to its final stage, and once all irregularities are regularised, the compounding process will be undertaken—as the last step in restoring full compliance.

The Compliance Case that Transformed My Perspective

This case reinforced the fact that compliance is not simply about filing forms; it is about meeting the larger regulatory purpose. Corrective compliance demands transparency, diligence, and a willingness to regularise past mistakes, regardless of when or how they occurred.

It also reaffirmed that a Company Secretary’s learning never stops. Even a straightforward subject like APR filing can evolve into a complex regulatory exercise when examined across multiple decades and entities. Each such matter sharpens professional judgment and deepens understanding of the interconnected nature of corporate governance and FEMA reporting.

Beyond Compliance: Reflections on the Journey

This experience strengthened my belief in the power of strong governance, the effectiveness of India’s regulatory framework, and the essential role that professional advice and mentorship play in resolving legacy issues.

It highlighted that-

“Company Secretaries do more than ensure compliance— we restore, rectify, and rebuild compliance systems when they break down.”

That is the true strength of our profession.