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Foreign Investment Reporting

Foreign Direct Investment (FDI) in India is undertaken in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 07, 2017 (Referred here as FEMA 20(R).

Reporting formalities for foreign investment are given below:

(A) Foreign Investment Reporting for Issue of Capital Instruments

A.1 Reporting inflows:

The actual inflows on account of issue of capital instruments shall be reported by the AD branch in the R-returns in the normal course.

A.2 Reporting of issue of capital instruments

Foreign Currency – Gross Provisional Return (FC- GPR): An Indian company issuing capital instruments to a person resident outside India, and where such issue is reckoned as Foreign Direct Investment under FEMA 20(R), shall report such issue in Form FC-GPR in the Single Master Form not later than thirty days from the date of issue of the capital instruments. Issue of ‘participating interest/ rights’ in oil fields shall be reported in Form FC-GPR.

The following cases / instances of issue of shares / capital instruments to persons resident outside India by an Indian company will require filing of Form FC-GPR: (a) bonus or rights shares directly or on amalgamation/ merger with an existing Indian company; (b) Capital instruments on account of a cross border merger in terms of Notification 389/ 2018 dated March 20, 2018; (c) Shares against any funds payable by the Indian company to the person resident outside India; (d) Sweat equity shares and shares issued upon exercise of employees stock option in terms of FEMA 20(R); (e) Issue of shares on conversion of convertible notes.

Allotment of shares under Initial Public Offer (IPO) or Qualified Institutional Placement (QIP) under the applicable SEBI Regulations need not be reported in Form FC-GPR.

In case the Indian company issues shares to a person resident outside India other than to the person resident outside India from who the inward remittance has been received, the form FC-GPR has to be filed along with the following documents: (a) KYC reports of both the remitter and the beneficial owner (b) A no-objection certificate (NOC) from the remitter for issuing capital instruments to the beneficial owner mentioning their relationship (c) A letter from the beneficial owner explaining the reason for the remitter making remittance on its behalf (d) A copy of agreement / board resolution from the investee company for issuing capital instruments to a person other than from who the remittance has been received.

A.3 Annual Return on Foreign Liabilities and Assets

An Indian company which has received FDI or an LLP which has received investment by way of capital contribution in the previous year(s) including the current year, shall submit form FLA to the Reserve Bank on or before the 15th day of July of each year. ‘Year’ for this purpose shall be reckoned as April to March.

(B) Reporting for Transfer of Shares

B.1 Reporting inflows

The actual inflows and outflows on account of transfer of shares shall be reported by the AD branch in the R-returns in the normal course.

B.2 Foreign Currency-Transfer of Shares (FC-TRS)

Form FCTRS is required to be filed for transfer of capital instruments in accordance with FEMA 20(R), between: (a) a person resident outside India holding capital instruments in an Indian company on a repatriable basis and person resident outside India holding capital instruments on a non-repatriable basis; and (b) a person resident outside India holding capital instruments in an Indian company on a repatriable basis and a person resident in India.

The onus of reporting is on the resident transferor/ transferee or the person resident outside India holding capital instruments on a non-repatriable basis, as the case may be.

Transfer of capital instruments in accordance with FEMA 20(R)  between a person resident outside India holding capital instruments on a non-repatriable basis and person resident in India is not required to be reported in Form FC-TRS.

Sale of capital instruments on a recognized stock exchange by a person resident outside India as prescribed in regulation 10(3) of FEMA 20(R) has to be reported by such person in Form FC-TRS.

Transfer of capital instruments prescribed in regulation 10(9) of FEMA 20(R) viz., payment on deferred basis, shall be reported in Form FC-TRS to the AD bank on receipt of every tranche of payment. The onus of reporting shall be on the resident transferor/ transferee.

Transfer of ‘participating interest/ rights’ in oil fields shall be reported Form FC-TRS.

Form FCTRS is required to be filed by the Indian company buying back shares in a scheme of merger/ de-merger/ amalgamation of Indian companies approved by NCLT/ competent authority.

The form FCTRS has to be filed with the AD bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

B.3 Know Your Customer (KYC)

The sale consideration in respect of capital instruments purchased by a person resident outside India, remitted into India through normal banking channels, is subject to a KYC check by the remittance receiving AD bank at the time of receipt of funds. In case, the remittance receiving AD bank is different from the AD bank handling the transfer transaction, the KYC check shall be carried out by the remittance receiving AD bank and the KYC report be submitted by the transferor/transferee to the AD bank carrying out the transaction along with the Form FC-TRS.

(C) Reporting of Conversion of ECB into Equity

Details of issue of shares against conversion of ECB have to be reported to the Regional Office concerned of the Reserve Bank, as indicated below:

(1) In case of full conversion of ECB into equity, the company shall report the conversion in Form FC-GPR as well as in Form ECB-2 (Part V: Annex III) to the Department of Statistics and Information Management (DSIM), Reserve Bank of India, within seven working days from the close of month to which it relates. The words “ECB wholly converted to equity” shall be clearly indicated on top of the Form ECB-2. Once reported, filing of Form ECB-2 in the subsequent months is not necessary.

(2) In case of partial conversion of ECB, the company is required to report the converted portion in Form FC-GPR as well as in Form ECB-2 clearly differentiating the converted portion from the non-converted portion. The words “ECB partially converted to equity” shall be indicated on top of the Form ECB-2. In the subsequent months, the outstanding balance of ECB shall be reported in Form ECB-2 to DSIM.

(D) Reporting of ESOPS and Sweat Equity Shares

An Indian company issuing employees’ stock option (ESOP) to persons resident outside India who are its employees/ directors or employees/ directors of its holding company/ joint venture/ wholly owned overseas subsidiary/ subsidiaries shall file Form-ESOP within 30 days from the date of issue of ESOPs.

(E) Reporting of ADR/GDR Issues- Form DRR

The domestic custodian shall report the issue/ transfer of sponsored/ unsponsored depository receipts as per DR Scheme 2014 in Form DRR within 30 days of close of the issue/ program.

(F) Reporting Requirements of LLP

Form FDI- LLP (I): A Limited Liability Partnerships (LLPs) receiving amount of consideration for capital contribution and acquisition of profit shares is required to submit a report in Form Foreign Direct Investment-LLP (I) within 30 days from the date of receipt of the amount of consideration. The form shall be accompanied by: (i) copy/ies of the FIRC/s evidencing the receipt of the remittance (ii) a KYC report in respect of the foreign investor in the format specified in.

Form FDI- LLP (II): The LLPs shall report disinvestment/ transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) within 60 days from the date of receipt of funds in Form Foreign Direct Investment-LLP(II).

(G) Reporting of Issue or Transfer of Convertible Notes-Form CN

A startup company issuing Convertible Notes (CNs) to a person resident outside India shall file Form CN within 30 days of issue.

Transfer of Convertible Notes of a startup company by way of sale between a person resident in India and a person resident outside India shall be reported by the transferor/transferee, resident in India, in Form CN within 30 days of such transfer.

The AD bank shall ensure due diligence with regards to KYC of the foreign investor/ buyer.

(H) Reporting of Foreign Portfolio Investment

H.1 Investment other than by NRIs/ OCIs

Reporting Form LEC(FII): The AD banks have to ensure that the FPIs registered with SEBI who are 55investing under schedule 2 of FEMA 20(R) and all investment (other than that made by NRIs/ OCIs) which is considered as Foreign Portfolio Investment within the meaning of regulation 2(xix) of FEMA 20(R) is reported in Form LEC(FII). It would be the bank’s responsibility to ensure that the data submitted to Reserve Bank is reconciled by periodically taking a FPI holding report for their bank.

The Indian company which has issued shares to FPIs which is considered as FDI within the meaning of regulation 2(xvii) of FEMA 20(R) shall be reported in Form-FCGPR.

H.2 Investment by NRIs/ OCI

The designated link office of the AD bank shall furnish to the Reserve Bank, a report on a daily basis, for their entire bank, investments made by NRIs/ OCIs which is considered as Foreign Portfolio Investment within the meaning of regulation 2(xix) of FEMA 20(R). It would be the banks responsibility to ensure that the data submitted to Reserve Bank is reconciled by periodically taking a NRI holding report for their bank.

(I) Downstream Investment

An Indian entity or an investment vehicle making downstream investment in another Indian entity which is considered as indirect foreign investment for the investee company in terms of Regulation 14 of FEMA 20 (R) read with Para 9 of Master Direction – Foreign Investment shall file form DI with the Reserve Bank within 30 days from the date of allotment of capital instruments.

(J) Investment by Foreign venture Capital Investor (FVCI)

Investment in capital instruments by FVCIs in terms of Schedule 7 to FEMA 20(R) is required to be reported in Form FC-GPR and transfer of capital instruments between an FVCI and a person resident in India in terms of the Schedule ibid is required to be filed in Form FC-TRS. Since pricing guidelines are not applicable for Schedule 7 investments, valuation certificate need not be insisted upon.

Delays in Foreign Investment Reporting

The person/ entity responsible for filing the reports provided in Part IV of this Master Direction shall be liable for payment of late submission fee (LSF) for any delays in reporting. (a) The LSF shall be applicable for the transactions undertaken on or after November 7, 2017. (b) The payment of LSF is an option for regularising reporting delays without undergoing the compounding procedure.

Calculation and Payment of LSF:

Where LSF is required to be paid, the reports shall be, wherever necessary, conditionally acknowledged subject to payment of the LSF. The final acknowledgement/ communication, wherever applicable, shall be given after the late submission fee is paid by the applicant.

For calculating the LSF amount, the period of contravention shall be considered proportionately {(approx. rounded off to next higher month ÷ 12) X amount for 1 year}.

For the purpose of calculation, “months” shall include Sundays/ Holidays.

For the purpose of calculation, the period shall begin from the day after the 30th day (from the date of receipt of funds/ allotment or transfer of shares) and end on the day preceding the day on which the transaction report is received in the Reserve Bank The date of reporting to the AD bank shall be deemed to be the date of reporting to the Reserve Bank provided the prescribed documentation is complete in all respects.

In case the reporting form (whether in physical or electronic form) is incomplete then the delay will continue till such time the form is received complete in all respects.

The applicant cannot claim a refund in any manner for the amount already deposited as LSF. It will, therefore, be in the applicant’s own interest to ensure compliance with the reporting norms and timelines.

The AD banks are required to ensure that there is no delay at their end in forwarding the completed application to the Reserve Bank. Any such delays will render the AD bank for action as laid down in section 11(3) of the Foreign Exchange Management Act, 1999.

The late submission fee is for reporting delays only. Contravention for non-issue/ late issue of capital instruments or non-transfer/ late transfer of capital instruments and other contraventions of the provisions FEMA 20(R) will be proceeded against as per the procedure laid down in sections 13 and 15 of FEMA, 1999.

The LSF may be paid by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at the Regional Office concerned.

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