CA. Deepender KumarCA. Deepender KumarCA. Deepender KumarCA. Deepender KumarDEEPENDER ANIL & ASSOCIATESDEEPENDER ANIL & ASSOCIATES

(Chartered Accountants)(Chartered Accountants)Mob No: 9910099584Mob No: 9910099584

deepanilassociates@gmail.comdeepanilassociates@gmail.comwww.deepanilassociates.comwww.deepanilassociates.com

Head OfficeHead Office Branch Office: Branch Office: Branch Office: Branch Office: 101 , E101 , E--36 Plot36 Plot--5A, 5A, IIndIInd Floor, SectorFloor, Sector--3A,3A, 48, First Floor, Tolstoy Road,48, First Floor, Tolstoy Road,Jawahar P ark, Jawahar P ark, RachnaRachna, Vaishali, , Vaishali, GhaiziabadGhaiziabad JanpathJanpath, Connaught Place, , Connaught Place, Laxmi Nagar, (UP) Laxmi Nagar, (UP) --201010 Behind 201010 Behind SarvanaSarvana BhawanBhawanDelhiDelhi--110092 New Delh110092 New Delhii--110001110001

2July 1, 2019

TOP TEN ODI DESTINATION COUNTRIES TOP TEN ODI DESTINATION COUNTRIES

20.67

14.18

8.02 7.69 6.755.03 4.36 3.61 3.37 3.37

0.925

10

15

20

25

0.920

% OF TOTAL OUTFLOW OF LAST 3 YEARS(2017 to 2019)

3July 1, 2019

SECTORWISE ODISECTORWISE ODI

23.09

11.84 12.02

5.883.84 3.15 1.94

0.555

10

15

20

25

1.940.55

0

% of total Outflows in the past 3 years(2017-2019)

4July 1, 2019

IndexS.No. Particulars Slide No.

1 Governing Regulations 7

2 Meaning of ODI & Definitions 8-10

3 Purpose of ODI 11

4 ODI Steps 12

5 Routes of Investment through ODI 13

01-Jul-19 5

5 Routes of Investment through ODI 13

6 ODI with Prior approval of RBI 14

7 General Permission 15

8 Financial Commitment 16-20

9 Methods of Funding Overseas Investments 21

10 Valuation of shares 22

11 ODI Under Approval Route 23

12 ODI Reporting 24-25

S.No. Particulars Slide No.

13 Indian Party’s Obligations 26-28

14 Intimation of Post investment Changes 29-30

15 ODI by Financial Sectors 31

16 ODI By Indian Mutual Funds 32

17 Investment through SPV 33-34

18 Issue of Guarantee by an IP to SDS of JV /WOS 35

19 Hedging of Overseas Direct Investments 36

01-Jul-19 6

19 Hedging of Overseas Direct Investments 36

20 Capitalization of exports and other dues 37

21 Pledge of charge 38

22 Post investment changes / additional investment in existing JV / WOS

39

23 Disinvestment in JV/ WOS 40-42

24 Restructuring of the balance sheet of the JV / WOS 43

25 Rollover of Guarantees 44-45

26 Overseas Investments by Resident Individuals 46-51

Foreign Exchange Management (Transfer or Issue of Any

Foreign Security) Regulations, 2004 [Notification No.

FEMA 120/RB-2004 dated July 7, 2004

Governing Regulations

Master Directions on Direct Investments by Residents in

JV/WOS abroad issued January 1, 2016 and Updated as on January 04, 2018

July 1, 2019 7

Meaning of ODI & Definition

Direct investment outside India means investments, either underthe Automatic Route or the Approval Route, by way ofcontribution to the

� Contribution to capital or

�subscription to the MOA of a foreign entity,�subscription to the MOA of a foreign entity,

�signifying a long-term interest in the overseas entity (setting up/ acquiring a Joint Venture (JV) or a Wholly Owned Subsidiary

(WOS). but does not include portfolio investment.

Note: Investments can be made in new or existing entity.

8July 1, 2019

�� ‘Joint‘Joint VentureVenture ‘‘

Joint Venture (JV)' means a foreign entity formed, registered orincorporated in accordance with the laws and regulations of the hostcountry in which the Indian party makes a direct investment.

�� ‘Wholly Owned Subsidiary’‘Wholly Owned Subsidiary’

‘Wholly Owned Subsidiary (WOS)' means a foreign entity formed,registered or incorporated in accordance with the laws and regulationsregistered or incorporated in accordance with the laws and regulationsof the host country, whose entire capital is held by the Indian party.

�� 'Real'Real EstateEstate Business’Business’'Real estate business' means buying and selling of real estate or tradingin Transferable Development Rights (TDRs) but does not includedevelopment of townships, construction of residential/commercialpremises, roads or bridges.

9July 1, 2019

A company incorporated in India or a body created under an act

of

A partnership firm registered under the Indian Partnership Act, 1932 or a

Limited Liability Partnership (LLP) incorporated under

the Limited Liability

Any other entity in

India as may be notified

by the Reserve

Provided that when more than one such company, body orentity make an investment in the foreign entity , suchcompanies or bodies or entities shall together constitute theINDIAN PARTY.

10

of Parliament.

the Limited Liability Partnership Act, 2008

Reserve Bank.

July 1, 2019

� Promoting global business by Indian entrepreneurs;

� Medium of economic and business co-operation between Indiaand other countries;

� Transfer of technology and skill, sharing of results of R&D;

� Access to wider global market;

Purpose of ODI

� Access to wider global market;

� Generation of employment; and

� Utilization of raw materials available in India.

July 1, 2019 11

ODI Steps

Step 1• Board Resolution for investment in overseas entity

Step 2• Valuation of shares – acquisition & further investment

Step 3

• Reporting in Form ODI within 30 days from the date ofremittance

Step 4• RBI will allot UIN for investment in entity

Step 5• Filing of share certificates with the AD within 6 months

Other• Post investment changes needs to be reported within 30 days

Step 5

July 1, 2019 12

Routes of Investment through ODI

Automatic RouteAn Indian Party does notrequire any priorapproval from theReserve Bank for makingoverseas direct

Approval RouteProposals not covered bythe conditions under theautomatic route requirethe prior approval of theReserve Bank for which a

Specifically prohibited activities–RealEstate & BankingBusiness. Reserve Bank for making

overseas directinvestments. The IndianParty should approach anAuthorized DealerCategory – I bank withan application in FormODI and the prescribedenclosures / documents.

the prior approval of theReserve Bank for which aspecific application inform ODI with thedocuments prescribedtherein is required to bemade through theAuthorized DealerCategory – I banks.

13July 1, 2019

Business.

ODI with Prior approval of RBI

� Real Estate Business.

� Banking Business (However, Indian banks can set up JVs/WOSsabroad provided they obtain clearance under the BankingRegulation Act, 1949)

�� ClarificationClarification--

An overseas entity, having direct or indirect equity participationby an Indian party, shall not offer financial products linked toIndian Rupee (e.g. non-deliverable trades involving foreigncurrency, rupee exchange rates, stock indices linked to Indianmarket, etc.) without the specific approval of the Reserve Bank.

14July 1, 2019

General Permission

� In terms of Regulation 4 of the Notification, general permissionhas been granted to persons residents in India for purchase /acquisition of securities in the following manner:

a) out of the funds held in RFC account;

b) as bonus shares on existing holding of foreign currency shares;b) as bonus shares on existing holding of foreign currency shares;and

c) when not permanently resident in India, out of their foreigncurrency resources outside India.

� General permission is also available to sell the shares sopurchased or acquired under clause (a), (b) and (c).

15July 1, 2019

Financial Commitment

Equity Shares & Preference Shares

Debt

Convertible/ Non-convertible

Guarantee

Indian PartyCompany, LLP and Registered Firm

No Distinction Between Equity, Preference & Debt for ODI purposes

100%

CCPS shall be treated at par

with equity shares

100% 50%

Financial Guarantee

Bank Guarantee,

with CounterGuarantee

Performance Guarantee

100%100%

July 1, 2019 16

Limit of Financial Commitment(FC) in JV/WOS

Total Financial Commitment:

� Total financial commitment not to exceed 400% of the net worth.

� Investment can be made by way of equity or equity and debt/guarantee.

Equity includes CCPS.

17July 1, 2019

� Equity includes CCPS.

� Only debt without equity participation not permitted (underAutomatic Route)

� Energy & Natural Resources sector – investment exceeding specifiedlimits permitted with RBIapproval.

Calculation of FC (400% of NW)With effect from July 03, 2014, FC shall not exceed 400% of thenet worth* of the Indian Party as on the date of the last auditedbalance sheet.* Net worth means paid up capital and free reserves.• It has been decided that any financial commitment exceeding

USD 1 billion in a financial year would require prior approval ofthe Reserve Bank even when the total FC of the Indian Party isthe Reserve Bank even when the total FC of the Indian Party iswithin 400% of the net worth as per the last audited balancesheet)

• Ceiling not applicable for investments out of EEFC or fundsraised through ADRs/GDRs.

Maximum limit would be:Maximum limit would be:

400% of net worth including guarantees + +

ADR/ GDR proceeds

Balance in EEFC A/c

July 1, 2019 18

Other terms & Conditions for FCOther terms & Conditions for FC--

� Loan / Guarantee is allowed only where Indian party has Equityparticipation otherwise if Indian party has to extended loan orguarantee to foreign entity without equity participation, it willrequire RBI prior approval;

� Amount & period of the guarantee should be specified upfront;Amount & period of the guarantee should be specified upfront;

� The Indian party should not be on the Reserve Bank’s Exporters'caution list / list of defaulters to the banking system circulatedby the Reserve Bank / Credit Information Bureau (India) Ltd.(CIBIL) / or any other credit information company as approvedby the Reserve Bank or under investigation by any investigation /enforcement agency or regulatory body.

19July 1, 2019

ContiConti……..

� All transactions relating to a JV / WOS should be routed throughone branch of an Authorised Dealer bank to be designated bythe Indian party.

� In cases of investment by way of swap of shares, irrespective ofthe amount, valuation of the shares will have to be made by athe amount, valuation of the shares will have to be made by aCategory I Merchant Banker registered with SEBI or anInvestment Banker outside India registered with the appropriateregulatory authority in the host country. Approval of the ForeignInvestment Promotion Board (FIPB) will also be a prerequisitefor investment by swap of shares.

20July 1, 2019

Methods of Funding for Overseas Investments� Drawal of foreign exchange from an AD bank in India;

� Capitalization of exports;

� Swap of shares (valuation to be done Merchant Banker registered withSEBI );

� Proceeds of External Commercial Borrowings (ECBs) / Foreign

Currency Convertible Bonds (FCCBs);Currency Convertible Bonds (FCCBs);

� Exchange of ADRs/GDRs issued in accordance with the Scheme

� For issue of Foreign Currency Convertible Bonds and Ordinary

shares (through Depository Receipt Mechanism) Scheme, 1993,

� Balances held in EEFC account of the Indian party and

� Proceeds of foreign currency funds raised through ADR / GDR issues.

21July 1, 2019

Valuation of shares

� Investment in shares of existing company–mandatoryvaluation requirements

• > USD 5 mn: SEBI regd. Category I Merchant Banker/Investment Banker/Merchant Banker registered in hostcountry.

• < USD 5 mn: Valuation by CA/ CPA.• < USD 5 mn: Valuation by CA/ CPA.

� Investment by way of swap of shares

• SEBI regd. Category I Merchant Banker/ Investment

Banker/ Merchant Banker regd. in host country.

• ADR/ GDR Swap: Valuation by Investment Banker.

22July 1, 2019

ODI Under Approval Route

� Cases not covered under Automatic route .

� Specific application to RBI with necessary documents in FormODI through the AD (Category I Bank).

RBI would inter alia consider the following factors:

� Prima facie viability of JV/ WOS outside India;

� Contribution to external trade and other benefits which willaccrue to India through such investment;

� Financial position and business track record of the Indian partyand foreign entity;

� Expertise and experience of the Indian party in the same orrelated line of activity of the JV/ WOS outside India Part II -Reporting of Remittances.

23July 1, 2019

� All transactions relating to investment in WOS to be routed through one AD Bank branch.

ODI comprises of four parts:

Part I – includes the following:

� Section A – Details of Indian Party (IP) / Resident Individual

ODI Reporting

� Section B – Capital Structure and other details of the JV / WOS / Step Down Subsidiary (SDS)

� Section C – Details of Transaction/ Remittance/ Financial Commitment of Indian Party/ Resident Individual

� Section D – Declaration by the Indian Party / Resident Individual

� Section E – Certificate by the Statutory Auditors of the Indian Party

July 1, 2019 24

Cont…

Part II – Annual Performance Report (APR)

PART III - Reporting of Disinvestment by way of Sale or Transfer of Shares / Closure / Voluntary Liquidation /Winding Up/ Merger /Amalgamation of JV / WOS

Key AspectsKey Aspects

� Second remittance not to be made pending allotment of UIN.

� Changes in equity shareholding of JV/ WOS to be reportedwithin 30 days .

� Downstream investment by JV/ WOS to be reported within 30days.

July 1, 2019 25

Indian Party’s Obligations

EVIDENCE:•Filling up of ODI Form to RBI, duly supported by certified boardresolution, statutory auditors certificate and valuation report,through AD – I Bank•Receive share Certificate Any other documents as an evidence ofinvestment within six months of investments

APR & FLA:APR & FLA:•Submit Annual Performance Report of overseas entity to the RBIthrough AD Bank every year after annual accounts are prepared 31ST

December every year (* based on annual accounts)•Submit annual return on Foreign Liabilities and foreign Assets 15th Julyevery year (through flair.rbi.org.in portal)

DUES:•Repatriate to India all dues viz. dividends, royalty, technical fees, etc.within 60 days of falling due.

26July 1, 2019

Conti…..Conti…..

* Where the law of the host country does not mandatorily requireauditing of the books of accounts of JV / WOS, the :

a. The Statutory Auditors of the Indian party certify that ‘The un-audited Annual Performance Report (APR) may be submitted by theIndian party based on the un-audited annual accounts of the JV /WOS provided annual accounts of the JV / WOS reflect the true and

27

WOS provided annual accounts of the JV / WOS reflect the true andfair picture of the affairs of the JV / WOS’ and

b. That the un-audited annual accounts of the JV / WOS has beenadopted and ratified by the Board of the Indian party.

Reporting requirements including submission of Annual PerformanceReport are also applicable for investors in unincorporated entities in theoil sector.

July 1, 2019

Conti…..Conti…..FLA:Earlier Indian companies which have made overseas directinvestments, shall submit an Annual return on Foreign Liabilities andAssets in the format as Prescribed by RBI (available in RBI’s website(www.rbi.org.in → Forms category → FEMA Forms) which can beduly filled-in, validated and sent by e-mail, by July 15 every year.(Email id is :fla@rbi.org.in)

28

Email id is :fla@rbi.org.in)

With the objective to enhance the security-level in datasubmission and further improve the data quality, the presentemail-based reporting system for submission of the FLA returnis replaced by the web-based system online reporting portal.Reserve Bank has provided a web-portal interfacehttps://flair.rbi.org.in.

July 1, 2019

The entity has to intimate to RBI regarding post investment changesin Form ODI Part I and the same shall be report in APR accordingly.

S.No Type of Post Investment Changes Relevant Section ofODI Part I to besubmitted

1. Change in the details of IP/ RI vizChange in the name, Address, contact

Section A

Intimation of Post investment Changes

29July 1, 2019

Change in the name, Address, contactdetails, status.

2. Investigation details of the IP / RI Section A

3. Change in the Networth of the IP Section A

4. Change in capital structure of the JV/WOS

Section B

5. Change in status of JV/ WOS fromoperating entity to SPV or vice versa

Section B

6. Change in the details of JV/ WOS such as name address etc.

Section B

7. Reporting of setup/ incorporation/ investment / disinvestment of SDS

Section B

8. Conversion of loan into equity and vice versa Section C

30July 1, 2019

9. Rollover/ change in amount / validity date of the guarantee already reported to the Reserve Bank

Section C

ODI by Financial SectorsRequirements to be fulfilled by the Indian Party:

Financial

Indian Party has earned net profit

during the preceding three financial years

Registered with the regulatory

authority in India for conducting

financial activitiesFinancial

Sector

financial activities

Has obtained approval from the regulatory

authorities concerned both in India and

abroad

Has fulfilled the prudential norms relating

to capital adequacy as prescribed by the

regulatory authority concerned in India

31July 1, 2019

ODI By Indian Mutual Funds (MF)

� MF registered with SEBI are permitted to invest within the overall cap of USD 7 billion in:

� ADRs / GDRs of the Indian and foreign companies

� equity of listed overseas companies

� foreign debt securities

� money market investments� money market investments

� government securities

� Derivatives(only for hedging and portfolio balancing)

� short term deposits with banks

� units / securities issued by overseas registered MF or Unit Trusts

32July 1, 2019

� Investment through SPV is permittedunder Automatic Route in terms ofRegulation 6 of the Notification.

� Setting up of an SPV under the AutomaticRoute is permitted for the purpose ofmaking a investment in JV/WOS overseas

Automatic Route

Indian party

Investment through SPV

� Indian parties whose names appear in theDefaulters' list require prior approval ofthe Reserve Bank for the investment.

Operating Entity

SPV

33July 1, 2019

I Co

SPV1

I Co

SPV1

I Co

SPV1

India

OutsideIndia

CCONTIONTI……

�

OpCo SPV2

OpCo

OpCo

SPV2

� �

July 1, 2019 34

IP are permitted to issue corporate guarantees on behalf of their first level

step down operating JV /WOS set up by their JV / WOS operating as either

an operating unit or as a Special Purpose Vehicle (SPV) under the

Automatic Route.

� provided the Indian Party directly or indirectly holds 51 per cent or morestake in the overseas subsidiary for which such guarantee is intended to

Issue of Guarantee by an IP to SDS of JV /WOS

stake in the overseas subsidiary for which such guarantee is intended tobe issued.

(Note :The Indian party / entity may extend loan / guarantee only to an

overseas JV / WOS in which it has equity participation.)

Proposals from the Indian party for undertaking financial commitment

without equity contribution in JV / WOS may be considered by the Reserve

Bank under the approval route.

35July 1, 2019

Hedging of Overseas Direct Investments

(1)Resident entities having overseas direct investments are permittedto hedge the foreign exchange rate risk arising out of suchinvestments. AD Category - I banks may enter into forward /option contracts with resident entities who wish to hedge theiroverseas direct investments (in equity and loan), subject toverification of such exposure.

(2) If a hedge becomes naked in part or full owing to shrinking of themarket value of the overseas direct investment, the hedge maycontinue to the original maturity. Rollovers on the due date arepermitted up to the extent of market value as on that date.

36July 1, 2019

Capitalisation of exports and other dues1. Indian party is permitted to capitalize the payments due from

the foreign entity towards exports, fees, royalties or any otherdues from the foreign entity for supply of technical know-how,consultancy, managerial and other services within the ceilingsapplicable.

2. Capitalization of export proceeds remaining unrealized beyond2. Capitalization of export proceeds remaining unrealized beyondthe prescribed period of realization will require prior approval ofthe RBI.

3. Indian software exporters are permitted to receive 25 % of thevalue of their exports to an overseas software start-up companyin the form of shares without entering into Joint VentureAgreements, with prior approval of the Reserve Bank.

37July 1, 2019

Pledge of shares of JV, WOS and SDS

� An Indian Party may create charge, by way of pledge, on the shares of

� JV or WOS or SDS outside India as a security in favour of an Authorized Dealer or a public financial institution in India or an overseas lender, for availing of fund based or non-fund based facility for itself (i.e. the Indian Party) or for its JV / WOS / SDS whose shares have been pledged, or for any other JV / WOS / SDS of the Indian Party subject to pledged, or for any other JV / WOS / SDS of the Indian Party subject to the terms and conditions prescribed under Regulation 18 of the Notification and A.P. (DIR Series) Circular No.54 dated December 29, 2014.

38July 1, 2019

Post investment changes / additional investment in

existing JV / WOS

� A JV / WOS set up by the Indian Party as per the Regulations maydiversify its activities / set up step down subsidiary / alter theshareholding pattern in the overseas entity (subject to complianceof Regulation 7 of the Notification ibid, in the case of financialservices sector companies).services sector companies).

� The IP should report to the RBI through the AD Category - I bank,the details of such decisions within 30 days of the approval of thosedecisions by the competent authority of the JV / WOS concerned interms of local laws of the host country and include the same in theAnnual Performance Report (APR - Part II of Form ODI) requiredto be forwarded to the AD Category-I bank

39July 1, 2019

Disinvestment in JV/ WOS

Buy-backAccounting write-off

GiftSale

Forms of Disinvestment

Merger/ Demerger

Asset sale/ slump sale

LiquidationCapitalReduction/ Repayment

July 1, 2019 40

Disinvest in case where write off is not involved:

� Yes. The Indian Party can disinvest in cases where write off is notinvolved without prior approval from Reserve Bank subject to thefollowing:

� Sale is effected through stock exchange

� Valued by CA/ CPA if sold through a private arrangement – linked to latest audited balance sheet

� the Indian Party does not have any outstanding dues by way ofdividend, technical know-how fees, royalty, consultancy,commission or other entitlements and / or export proceeds from theJV or WOS;

� All APR & Accounts are filed with the Ads

� the Indian party is not under investigation by CBI / DoE/ SEBI / IRDA or any other regulatory authority in India.

� Amount is repatriated not later than 90 days from date of sale.

41July 1, 2019

Disinvestment of stake in overseas JV/WOS, with

write off

� Indian Party may disinvest without prior approval of the Reserve Bank, in the under noted cases, where the amount repatriated on disinvestment is less than the amount of the original investment:

� Overseas company is a listed company� Overseas company is a listed company

� Listed Indian Party with 100 Cr. Net worth

� Unlisted Indian Party with total investment not over US$ 10mn

� Listed Indian Party with less than 100 Cr. Net-worth but also investment is less than USD 10mn.

42July 1, 2019

Restructuring of the balance sheet of the JV / WOS

abroadIndian promoters who have set up WOS abroad or have at least51 % stake in an overseas JV, may write off capital (equity/ preference shares) or other receivables, such as, loans, royalty,technical knowhow fees and management fees in respect of theJV /WOS, as under:JV /WOS, as under:

� Listed Indian company can write-off Capital and repatriableentitlements up to 25% of Equity investment in the JV/ WOS

� Unlisted company can do so with prior approval of RBI

Report write-off within 30 days of write-off with copy of Balance Sheet ofthe overseas JV/WOS and projections for next 5 years indicating benefitof write-off.

43July 1, 2019

Rollover of GuaranteesW.E.F. 3rd January 2014, vide A.P DIR CIRCULAR NO- 83

� It has been decided not to treat / reckon the renewal / rollover of an existing / original guarantee, which is part of the total financial commitment of the Indian party in terms of Regulation 6 of the Notification 120/RB dated 07/07/2004, as a fresh financial Notification 120/RB dated 07/07/2004, as a fresh financial commitment, provided that :

� the existing / original guarantee was issued in terms of the then extant / prevailing FEMA guidelines.

� No change in the end use of guarantee

� No change in terms, conditions & amount except validity period of guarantee;

� Fresh reporting is done in Form ODI

44July 1, 2019

Cont……Cont……

• if the Indian party is under investigation by any investigation /enforcement agency or regulatory body, the concerned agency /body shall be kept informed about the same.

(In case, however, the above conditions are not met, the Indianparty shall obtain prior approval of the Reserve Bank for rollover /renewal of the existing guarantee through the designated ADrenewal of the existing guarantee through the designated ADbank.)

45July 1, 2019

� Resident individual is prohibited from making direct investmentin a JV or WOS abroad which is engaged in the real estatebusiness or banking business or in the business of financialservices activity.

� The JV or WOS abroad shall be engaged in bonafide businessactivity.

� Resident individual is prohibited from making direct investmentin a JV / WOS [set up or acquired abroad individually or in

Overseas Investments by Resident Individuals

Resident individual is prohibited from making direct investmentin a JV / WOS [set up or acquired abroad individually or inassociation with other resident individual and / or with anIndian party] located in the countries identified by the FinancialAction Task Force (FATF) as "non co-operative countries andterritories" as available on FATF website www.fatf-gafi.org or asnotified by the RBI.

� The resident individual shall not be on the Reserve Bank’sExporters Caution List or List of defaulters to the banking systemor under investigation by any investigation / enforcement agencyor regulatory body.

July 1, 2019 46

� At the time of investments, the permissible ceiling shall bewithin the overall ceiling prescribed for the resident individualunder Liberalised Remittance Scheme as prescribed by theReserve Bank from time to time.

� [Explanation: The investment made out of the balances held inEEFC / RFC account shall also be restricted to the limitprescribed under LRS.]prescribed under LRS.]

� The JV or WOS, to be acquired / set up by a resident individualunder this Schedule, shall be an operating entity only and nostep down subsidiary is allowed to be acquired or set up by the JVor WOS.

July 1, 2019 47

ODI by Individuals – Options

NRIndividuals

Foreign Co

Gift

Option 1 – Gift Route

ResidentIndividuals

NR

Foreign Co ESOP

Option 2 – ESOP Route

Indian Sub Indian Sub

Resident Individuals

Employment

July 1, 2019 48

Round Tripping Issues

Indian Company/ Party

Funds

Indian Company/ Party

View I – Round Tripping of Funds

View II – Round Tripping of Structure

Non Resident Investors

Foreign Company

Indian Company

Funds

Foreign Company

IndianCompany

Funds

Funds

July 1, 2019 49

ODI- Other Points

Proprietorship concerns and unregistered partnership firms are permitted to set up JV/WOS with prior approval of Reserve Bank

Registered Trusts and societies engaged in manufacturing/ educational/ hospital sector permitted for overseas investments with prior approval of Reserve Bankprior approval of Reserve Bank

All investments should have Unique Identification Number (UIN) from the Reserve Bank of India

Listed Indian companies are permitted to invest upto 50% of their net worth in shares/bonds/fixed income securities rated not below investment grade issued by listed overseas companies.

50July 1, 2019

Cont…

Pakistan is allowed under the approval

route

Pakistan is allowed under the approval

route

Nepal can be only in Indian Rupees

Nepal can be only in Indian Rupees

Nepal can be only in Indian Rupees

Nepal can be only in Indian Rupees

Bhutan are allowed in Indian Rupees and in

freely convertible currencies.

Bhutan are allowed in Indian Rupees and in

freely convertible currencies.

51July 1, 2019

52July 1, 2019

� Total compounding order passed by RBI from 1/06/2016 to till 29/06/2019

Statistical Facts

Area No. of Order %

Foreign Direct Investment(FDI) 1403 82.14

Overseas Direct Investment(ODI) 209 12.14External Commercial Borrowing(ECB) 53 3.12

Establishment in India of Branch or Office 14 0.82

Current Account Transactions Rules, 2000 08 0.47

01-Jul-19 53

Current Account Transactions Rules, 2000 08 0.47

Foreign currency account 05 0.29

Acquisition /transfer of immovable property 05 0.29Deposit Regulations, 2000 03 0.18Realisation, Repatriation & Surrender of Foreign Exchange

020.12

Manner of Receipt and Payment Regulations 01 0.06

Export of Goods and Services Regulations, 2000 01 0.06

Regularization of assets 01 0.06

LRS 03 0.18

Total 1708 100

Statistical Facts

� The amount imposed under compounding has been paid in 1698 orders out of 1708 till 29.06.2019.

1%

Amount Paid Amount not paid

01-Jul-19 54

99%

Governing Law

� Section 13 of FEMA covers penalties in respect contraventionswhich are compounded.

� Section 14 of FEMA Enforcement of order of adjudicationAuthority.

� Section 15 of FEMA 1999 covers powers to compoundcontraventions and empowers the Compounding Authority tocontraventions and empowers the Compounding Authority tocompound the contraventions

� Master Direction – Reporting under Foreign ExchangeManagement Act,1999 (Updated as on April 04, 2019)

� Master Direction- Compounding of Contraventions underFEMA, 1999 (Updated as on April 04, 2019)

� Foreign Exchange(Compounding Proceedings) Rules, 2000 (theRules) as amended time to time, lay down the basic frameworkfor compounding process.

01-Jul-19 55

IndexS.No. Particulars Slide No.

1 Meaning of contravention 59

2 Generally Committed Contraventions 60-61

3 Meaning of compounding of contravention 62

4 Benefits of compounding 63

5 Legal empowerment 64

01-Jul-19 56

5 Legal empowerment 64

6 Who can apply for compounding 65

7 When should one apply for compounding 66

8 Who can compounding 67

9 Fees for seeking compounding 68

10 Pre-requisite for Compounding Process 69

S.No Particulars Slide No.

11 Compounding process 70-72

12 Compounding application and related documents 73-85

13 Power to compounding by designation in RBI 86

14 Power to compound to Regional Offices of RBI 87-95

15 Action is taken by the RBI on receipt of application 96

01-Jul-19 57

15 Action is taken by the RBI on receipt of application 96

16 Type of contraventions 97

17 Contravention not be classified as technical 98

18 When a contravention is classified as Material 99

19 compounding Order(CO) 100

20 Factor- considered at time of passing CO 101

21 Calculation of compounding amount 102-106

S.No Particulars Slide No.

21 Penalties-Quantum of penalty (section 13) 107

22 Time limit for payment of contravention penalty 108

24 How does the application finally get disposed of 109

25 Appeal against the Compounding order 110

26 Cases in which Application fees will be return 111

01-Jul-19 58

26 Cases in which Application fees will be return 111

27 Late Submission Fees (LSF) 112

28 Calculation of LSF 113

� Contravention is a breach of the following:

�Provisions of the FEMA, 1999

�Rules made under FEMA

� Regulations

�Notifications

Meaning of contravention

�Notifications

�Orders

�Directions

�Circulars

issued under the Foreign Exchange Management Act (FEMA), 1999.

01-Jul-19 59

� Under Overseas Direct Investment

�Non submission of form ODI after investment and UIN notallotted.

�Not permitted method of funding.

�Not obtaining share certificate within stipulated time period

Generally Committed Contraventions

�Not obtaining share certificate within stipulated time periodfrom the date of remittance.

�Non-submission of Annual Performance Report (APR) everyyear.

�Contravention of other regulations of notification No. FEMA120/ RB-2004 dated July 7, 2004.

01-Jul-19 60

� Under Foreign Direct Investment

�Not reporting of inward remittance within 30 days.

�Not allotting equity instruments or not refunding the amountwithin 60 days.

�Not submitting form FC-GPR within 30 days from the date ofallotment.allotment.

�Non submission of form FCTRS on transfer of shares.

� Issue of instruments other than permitted instruments.

�Contravention of other regulations of notification No. FEMA20(R)/ 2017-RB dated November 07, 2017.

01-Jul-19 61

� Meaning of the word ‘compound’ or ‘compounding’ not definedin the Act or in the Rules.

� Compounding refers to the process of voluntarily admitting thecontravention, pleading guilty and seeking Redressal.

� It is a voluntary process in which an individual or a corporate

Meaning of compounding of contravention

� It is a voluntary process in which an individual or a corporateseeks compounding of an admitted contravention.

� It provides comfort to any person who contravenes anyprovisions of FEMA {except Section 3(a) of the Act}.

01-Jul-19 62

� It is a voluntary process

� Comforts of citizens and corporate community

� Personal hearing is not mandatory

� Minimising transaction costs

Time –bound disposal(180 Days)

Benefits of compounding

� Time –bound disposal(180 Days)

� Changing dynamics of our economy

� Simple and hassle – Free procedure

� No proceeding or further proceedings initiated or continued

� Absolutely transparent

� It saves time and energy One application – One hearing – Oneorder for one notification.

01-Jul-19 63

Power to compound contravention under section 15 of FEMA 1999

� Any contravention under section 13 may, on an application madeby the person committing such contravention, be compoundedwithin one hundred and eighty days from the date of receipt ofapplication by the Director of Enforcement or such other officersof the Directorate of Enforcement and officers of the Reserve

Legal empowerment

of the Directorate of Enforcement and officers of the ReserveBank as may be authorized in this behalf by the CentralGovernment in such manner as may be prescribed.

� Where a contravention has been compounded under sub-section(1), no proceeding or further proceeding, as the case may be, shallbe initiated or continued, as the case may be, against the personcommitting such contravention under that section, in respect ofthe contravention so compounded.

01-Jul-19 64

� Any person

� Who contravenes any provision of the FEMA, 1999 [exceptsection 3(a)] or contravenes any rule, regulation, notification,direction or order issued in exercise of the powers under this Actor

Who can apply for compounding

or

� Contravenes any condition subject to which an authorization isissued by the Reserve Bank,

� Can apply for compounding to the Reserve Bank.

� Applications seeking compounding of contraventions undersection 3(a) of FEMA, 1999 may be submitted to the Directorate

of Enforcement.

01-Jul-19 65

� When a person is made aware of the contravention of theprovisions of FEMA, 1999 by the Reserve Bank or any otherstatutory authority or the auditors or by any other means, she/hemay apply for compounding.

� One can also make an application for compounding, suo moto,on becoming aware of the contravention.

When should one apply for compounding

on becoming aware of the contravention.

01-Jul-19 66

Who can compounding of Contravention

� The Government of India has, in consultation with the ReserveBank placed the responsibilities of administering compoundingof cases with the Reserve Bank, except under Section 3(a) ofFEMA, 1999, dealing essentially with Hawala transaction.

� Accordingly, the Government notified Compounding Rules,2000 vide Notification No. G.S.R.383(E) dated 3rd May 2000.2000 vide Notification No. G.S.R.383(E) dated 3rd May 2000.

� The Enforcement Directorate is of the view that thecompounding proceeding relates to a serious contravention,such cases will not be compounded by the Reserve Bank.

01-Jul-19 67

� The application in the prescribed format along withnecessary documents and a demand draft for Rs. 5000/-(Rupees five thousand only) drawn in favour of the“Reserve Bank of India” should be sent to the RBI whilesending the request for compounding.

Fees for seeking compounding

sending the request for compounding.

01-Jul-19 68

� In respect of a contravention committed, a similar contraventioncould not be committed by a person in last three year.

� Contraventions relating to any transaction where properapprovals from the Government or any statutory authorityconcerned, have been required, such contraventions would notbe compounded unless the required approvals are obtained from

Pre-requisite for Compounding Process

be compounded unless the required approvals are obtained fromthe concerned authorities.

� In case where adjudication has been done by the DoE and anappeal has been filed under section 17 or 19 of FEMA, nocontravention can be compounded in terms of Rule 11 of ForeignExchange (Compounding Proceedings) Rules, 2000

01-Jul-19 69

� Receipt of application

� Receipt of fees

� Examination of documents by RBI

� Calling for additional documents, if required

� Opportunity for personal hearing

Compounding Process

� Opportunity for personal hearing

� Passing compounding order

� Payment of penalty: and

� Issuance of certificate of payment of a penalty.

01-Jul-19 70

� Application, along with fee and documents to be submitted toThe Compounding Authority, Central Office or the RegionalOffice concerned depending on the amount / contravention.

� The application fee shall be paid by a DD in favour of the“Reserve Bank of India” and payable at Mumbai or the Regional

Compounding Process- Brief

“Reserve Bank of India” and payable at Mumbai or the RegionalOffice location.

� The proceedings would be concluded and order issued by theCompounding Authority within 180 days from the date of receiptof the application for compounding.

� This time limit would be from the date of receipt of applicationfor compounding to the date of issue of compounding order.

01-Jul-19 71

� The Compounding Authority(CA) may call for additionalinformation, relevant to the compounding proceedings.

� Such additional information where ever called for shall besubmitted within the period as specified by the CA.

� In case the contravener fails to submit the additionalinformation called for within specified period, the applicationfor compounding will be liable for rejection.for compounding will be liable for rejection.

� Contraventions relating to any transaction under FEMA butrequiring approval or permission from the GovernmentDepartment concerned or any Statutory Authority as thecase may be, would not be compounded UNLESS therequired approval is obtained from the authoritiesconcerned.

01-Jul-19 72

A. The format of the application

B. Details Required for contravention relating to Foreign DirectInvestment, External Commercial Borrowings, Overseas DirectInvestment and Branch Office/ Liaison Office.

C. Undertaking that the applicant is/is not under investigation of

Compounding application and related documents

C. Undertaking that the applicant is/is not under investigation ofany agency such as DOE, CBI, etc. in order to complete thecompounding process within the time frame

D. Mandate and details of their bank account (In case theapplication has to be returned for any reason, the applicationfees of Rs.5000/- received along with the application fees is alsoreturned.

01-Jul-19 73

1. Name of the applicant (in BLOCK LETTERS)2. Full address of the applicant (including Phone and Fax No. and

email id)3. Whether the applicant is resident in India or resident outside India.4. Name of the Adjudicating Authority before whom the case is

pending5. Nature of the contravention [according to sub-section (1) of Section

A. Format of application

5. Nature of the contravention [according to sub-section (1) of Section13]

6. Brief facts of the case7. Details of fee for application of compounding8. Any other information relevant to the case .I/We declare that the particulars given above are true and correct tothe best of my/our knowledge and belief and that I/We am/are willingto accept any direction/order of the Compounding Authority inconnection with compounding of my/our case.Dated :Name (Signature of the Applicant)

01-Jul-19 74

� In case of contravention relating FDI:

�Name of the applicant

�Date of incorporation

� Income-tax PAN

B. Details required for compounding application

Income-tax PAN

�Nature of activities under taken (Please give NIC code – 1987 /2008)

�Brief particulars about the foreign investor

�Details of foreign inward remittances received by ApplicantCompany from date of incorporation till date in followingformat:

01-Jul-19 75

Table ATable A

S.No Name of Remitter

Total Amount (INR)

Date of Receipt

•Reported to RBI on

Delay if any

Table Table BB

Name of Investor

Date of allotment of

shares

No. of shares allotted

Amount for which shares

allotted

•Date of reporting to

RBI

Delay if any

01-Jul-19 76

shares allotted RBI

Table C

S.No

Name of Remitter

Total Amount

(INR)

Date of Receipt

Excess share

application money

Date of refund of share

application money

Amount in Forex

RBI approval letter and

date

•Date of reporting to RBI and not AD

A= B+CPlease give supporting documentsTable A- Copies of FIRC with date stamp of receipt at RBI

Table D(Authorised Capital)Table D(Authorised Capital)

S.NoS.No DateDate Authorised Authorised CapitalCapital

With effect With effect fromfrom

Date of Board Date of Board meetingmeeting

Date of filing Date of filing with ROCwith ROC

Table A- Copies of FIRC with date stamp of receipt at RBITable B- Copies of FCGPR with date stamp of receipt at RBITable C – letter seeking refund/ allotment of shares- approval letter

from RBI A2 form

�Copies of Balance Sheet during the period of receipt of shareapplication money

�and allotment of shares�Nature of contravention and reasons for the contravention

01-Jul-19 77

�� In case of contravention relating External Commercial In case of contravention relating External Commercial Borrowing (ECBBorrowing (ECB))

� Name of the applicant

� Date of incorporation

� Income-tax PAN

� Nature of activities under taken (Please give NIC code – 1987)

� Brief particulars about the foreign lender� Brief particulars about the foreign lender

� Is the applicant an eligible borrower?

� Is the lender eligible lender?

� Is the lender an equity holder?

� What is the level of his holding at the time of loan agreement?

� Details of ECB

01-Jul-19 78

� Amount in Foreign Currency and Indian Rupee

� Rate of interest

� Period of loan

� Repayment particulars-

� Details of draw down

Date of draw down Amount in Foreign Currency Amount in INR

� Details of draw down

� Details of LRN Number- application and receipt

� Details of ECB 2 returns submitted; Period of return: Date of submission

� Details of Utilization of ECB in Foreign Currency and Indian Rupee

� Nature of contravention and reasons for the contravention

� All supporting documents may be submitted

01-Jul-19 79

�� In case of contravention relating Overseas Direct InvestmentIn case of contravention relating Overseas Direct Investment

(ODI)(ODI)

� Name of the applicant

� Date of incorporation

� Income-tax PAN

� Nature of activities under taken (Please give NIC code – 1987)

� Name of Overseas entity � Name of Overseas entity

� Date of incorporation of overseas entity

� Nature of activities under taken by overseas entity

� Nature of entity- WOS/JV

01-Jul-19 80

� Details of remittance sent- Date of remittance; Amount in FCY and in INR

� Details of other financial Commitment

� Details of UIN applied and received

� Date of receipt of share certificate

� Approval of other regulators if required

� Details of APRs submitted: For the period ended; date of � Details of APRs submitted: For the period ended; date of submission

� Nature of contravention and reasons for the contravention

� All supporting documents may be submitted

01-Jul-19 81

�� In case of contravention relating Branch/Liaison Office in In case of contravention relating Branch/Liaison Office in IndiaIndia

� Name of the applicant

� Date of incorporation

� Income-tax PAN

� Nature of activities under taken (Please give NIC code – 1987)

� Date of approval for opening of Liaison Office/ Branch Office� Date of approval for opening of Liaison Office/ Branch Office

� Validity period of the approval

� Income and expenditure of the LO/BO

� Dates of submission of Annual activity Certificates

� Nature of contravention and reasons for the contravention

� All supporting documents may be submitted

01-Jul-19 82

I/We _________________ (Name of the applicant) herebyconfirm/declare that I/we am/are not under anyenquiry/investigation/adjudication by any agency such asDirectorate of Enforcement, CBI etc as on the date of thisapplication.

I/We further undertake to inform to the Compounding

C. Undertaking (On the letterhead of the applicant)

I/We further undertake to inform to the CompoundingAuthority / Reserve Bank of India immediately, in writing, if anyenquiry/investigation/adjudication proceedings are initiated byany agency against me/us at any time hereafter but on or beforethe date of issuance of the compounding order in respect of thecompounding application filed by me/us.’

OR

01-Jul-19 83

I/We _________________ (Name of the applicant) herebyconfirm/declare that I/we am/are or was/were underenquiry/investigation/adjudication by any agency such asDirectorate of Enforcement, CBI etc. and the details are given inthe Annex.

I/We further undertake and confirm that no appeal has beenI/We further undertake and confirm that no appeal has beenfiled by me/us under section 17 or section 19 of FEMA, 1999.

Signature of the authorised signatory

01-Jul-19 84

1. Name of the Party (Beneficiary)2. PAN 3. Particulars of the Bank Account –

A. Name of the Bank B. Name of the Branch - Address: Telephone No:C. Type of Account - SAVINGS / CURRENTD. Account No. - (as appearing on the cheque book issued by the Bank)

D. Electronic Clearing Service (ECS) - Mandate Form

D. Account No. - (as appearing on the cheque book issued by the Bank) E. The 9 Digit MICR Code Number - (as appearing on the cheque book)F. IFSC Code - (as appearing on the cheque book issued by the Bank)

4. Checklist for Attachments: Photocopy of PAN Card Photocopy of a cancelled blank cheque

5. I/We hereby declare that the particulars given above are correct and complete. If the transaction is delayed or not effected at all for reasons of incomplete or incorrect information, I/We would not hold the user institution responsible.

Date: Signature of the Authorised SignatoryPlace: (Name of the Authorised Signatory)

Official Stamp

01-Jul-19 85

Power to compound by designation in RBI

S.No. Monetary Limit Designation/post in RBI

1 Rs. Ten Lakhs or less Assistant General Manager

2 Rs. Ten Lakhs or more but less than Rs. Forty Lakhs

Deputy General Manager

� Provided no contravention shall be compounded unless theamount involved in such contravention is quantifiable.

01-Jul-19 86

than Rs. Forty Lakhs

3 Rs. Forty Lakhs or more but less than Rs. Hundred Lakhs

General Manager

4 Rs. One Hundred Lakhs or more Chief General Manager

Power to compound to to Regional Offices of RBI

S.No FEMA Regulations Brief Description of Contravention

1 Paragraph 9(1)(A) ofSchedule I

Delay in reporting inwardremittance for issue of shares.

2Paragraph 9(1)(B) ofSchedule I

Delay in filing form FC(GPR) afterissue of shares.

01-Jul-19 87

2Schedule I issue of shares.

3 Paragraph 9(2) of Schedule IDelay in filing the Annual Return inrespect of the Foreign Liabilities andAssets (FLA)

4 Paragraph 8 of Schedule I Delay in issue of shares/refund ofshare application money beyond 180days, mode of receipt of funds, etc.

5 Paragraph 5 of Schedule IViolation of pricing guidelines forissue of shares

6 Regulation 2(ii) read withRegulation 5(1)

Issue of ineligible instruments such asnon-convertible debentures, partly paidshares, shares with optionality clause,etc.

7Paragraph 2 or 3 of Schedule I

Issue of shares without approval of RBIor FIPB respectively, wherever required.

8 Regulation 10A (b)(i) read Delay in submission of form FC-TRS on

01-Jul-19 88

8 Regulation 10A (b)(i) readwith paragraph 10 of ScheduleI

Delay in submission of form FC-TRS ontransfer of shares from Resident to Non-Resident.

9 Regulation 10B (2) read withparagraph 10 of Schedule I

Delay in submission of form FC-TRS ontransfer of shares from Non-Resident toResident.

10 Regulation 4 Taking on record transfer of shares byinvestee company, in the absence ofcertified from FC-TRS.

11

Regulation 14(6)(ii)(a)

Delay in reporting the downstreaminvestment made by an Indian entity oran investment vehicle in another Indianentity to Secretariat for IndustrialAssistance, DIPP..

12 Paragraphs 7(1) (for the periodupto 02.03.2017) and 6(1) (forthe period 03.03.2017 to

Delay in reporting receipt of amount ofconsideration for capital contributionand acquisition of profit shares by LLPs/

01-Jul-19 89

the period 03.03.2017 to06.11.2017) of Schedule 9

and acquisition of profit shares by LLPs/delay in reportingdisinvestment/transfer of capitalcontribution or profit share between aresident and a non-resident (or vice-versa) in case of LLPs

13 Regulation 10(A)(a) Gift of capital instruments by a personresident in India to a person residentoutside India without seeking priorapproval of the RBI.

� The compounding powers have been delegated to the Regional Offices of the RBI.

Notification No. FEMA 20(R)/2017-RB dated 07/11/17

S.No. FEMA Regulations Brief Description of Contravention

1Regulation 13.1(1)

Delay in reporting inward remittancereceived for issue of shares.

01-Jul-19 90

received for issue of shares.

2 Regulation 13.1(2)Delay in filing form FC(GPR) after issueof shares.

3Regulation 13.1(3)

Delay in filing the Annual Return onForeign Liabilities and Assets (FLA).

4 Paragraph 2 of Schedule IDelay in issue of shares/refund of shareapplication money beyond 60 days,mode of receipt of funds, etc.

5 Regulation 11Violation of pricing guidelines forissue/transfer of shares.

6Regulation 2(v) read withRegulation 5

Issue of ineligible instruments

7 Regulation 16.BIssue of shares without approval of RBI

01-Jul-19 91

7 Regulation 16.BIssue of shares without approval of RBIor Government, wherever required.

8 Regulation 13.1(4)Delay in submission of form FC-TRSon transfer of shares from Resident toNon-Resident.

9 Regulation 4Receiving investment in India fromnon-resident or taking on recordtransfer of shares by investee company.

10 Regulation 13.1(11)

Delay in reporting the downstreaminvestment made by an Indian entity oran investment vehicle in anotherIndian entity (indirect foreigninvestment), to Secretariat forIndustrial Assistance, DIPP.Delay in reporting receipt of amount of

01-Jul-19 92

11 Regulations 13.1(7) and 13.1(8)

Delay in reporting receipt of amount ofconsideration for capital contribution andacquisition of profit shares by LLPs/ delayin reporting disinvestment/transfer ofcapital contribution or profit sharebetween a resident and a nonresident (or

vice-versa) in case of LLPs.

12 Regulation 10(5)

Gift of capital instruments by a personresident in India to a person residentoutside India without seeking priorapproval of RBI.

� Foreign Exchange Department, Central Office Cell are now authorized to compound the contraventions as under-

Power to FED, CO Cell, RBI, 6, Sansad Marg, New Delhi

S.No. FEMA Regulations Brief Description of Contravention

1Contraventions relating to acquisitionand transfer of immovable propertyoutside India

01-Jul-19 93

outside India

2Contraventions relating to acquisitionand transfer of immovable property inIndia

3Contraventions relating toestablishment in India of Branch office,Liaison Office or project office

4Contraventions falling under ForeignExchange Management (Deposit)Regulations , 2000

� The above contraventions can be compounded by all RegionalOffices of FED (except Kochi and Panaji) without any limit onthe amount of contravention.

� Kochi and Panaji Regional offices can compound the abovecontraventions for amount of contravention below Rupees1,00,00,000/-.

� The contraventions of Rupees 1,00,00,000/-. and above under the� The contraventions of Rupees 1,00,00,000/-. and above under thejurisdiction of Panaji and Kochi Regional Offices and all othercontraventions of FEMA will be compounded at Cell for EffectiveImplementation of FEMA (CEFA), Mumbai RO andThiruvananthapuram RO respectively.

01-Jul-19 94

� Accordingly, applications for compounding related to the abovecontraventions may be submitted by the concerned entities tothe respective Regional Offices under whose jurisdiction they fallor to FED, CO Cell, New Delhi, as applicable.

� For all other contraventions, applications may continue to besubmitted to CEFA, Foreign Exchange Department, 5th floor,submitted to CEFA, Foreign Exchange Department, 5th floor,Amar Building, Sir P.M.Road, Fort, Mumbai 400001.

01-Jul-19 95

Action is taken by the RBI on receipt of application

Application Verify

Application incompleteApplication Complete with required

details

the contravention is not admitted and application will be returned

the contravention is admitted

Receipt of Application by the RBI

01-Jul-19 96

RBI will examine and decide if the contravention is in nature

Technical Material Sensitive

It compounded by imposingan amount after giving anopportunity to appear beforethe CA for a personal hearing.

It compounded by imposing an amount after giving an opportunity to appear before the CA for a personal hearing.

it referred to the Directorate of Enforcement for further

investigation/ action.

Note:- Once the Compounding Application is filled by concerned entity Suo-Moto, admitting the contravention, the same will not be considered as “technical” or “minor” in nature.

Type of contravention would be decided by the RBI on the meritsof the case.

�� SensitiveSensitive ContraventionsContraventions those contravention having seriousissue like suspected of money laundering, terror financing oraffecting sovereignty and integrity of the nation.

�� MaterialMaterial ContraventionsContraventions Material contraventions are those

Type of contraventions

�� MaterialMaterial ContraventionsContraventions Material contraventions are thosewhich are required to be compounded for which the necessarycompounding procedure has to be followed.

�� TechnicalTechnical ContraventionsContraventions Whenever a contravention isidentified by the RBI or brought to its notice by the entityinvolved in contravention by way of a reference other thanthrough the prescribed application for compounding, the Bankwill decide it technical contravention.

01-Jul-19 97

� Once a compounding application is filed by the concerned entitysuo moto, admitting the contravention, the same will not beconsidered as ‘technical’ or ‘minor’ in nature and thecompounding process shall be initiated in terms of section 15 (1)of Foreign Exchange Management Act, 1999 read with Rule 9 ofForeign Exchange (Compounding Proceedings) Rules, 2000.

Contravention not be classified as technical

Foreign Exchange (Compounding Proceedings) Rules, 2000.

01-Jul-19 98

When a contravention is classified as Material

person opts not to attend the personal hearing.

When contravention is material than concern authorities call for a personal hearing.

person opts to attend the personal hearing( applicant authorise another

person to attend the personal hearing)

01-Jul-19 99

The application would be disposed of on the basis of

personal hearing and documents submitted

The application would be disposed of on the basis

of documents submitted.

�Appearing for personal hearing is not mandatory.�The personal hearing does not have any bearing whatsoever on the amount imposed in the compounding order.

� The Compounding Authority passes an order indicating detailsof the contravention and the provisions of FEMA, 1999 that havebeen contravened.

� The Compounding Authority shall pass an order after affordingthe contravener an opportunity of being heard.

� The sum payable for compounding the contravention isindicated in the compounding order.

Compounding Order(CO)

The sum payable for compounding the contravention isindicated in the compounding order.

� The contravention is compounded by payment of the amountimposed.

� Compounding orders passed on or after June 1, 2016 will bepublished on the RBI’s website. The data on the website will beupdated on monthly intervals in the following format:

01-Jul-19 100

Sr.No Name of applicant

Amount Imposed

Paid/notPaid

Download order

� The amount of gain of unfair advantage, wherever quantifiable,made as a result of the contravention;

� the amount of loss caused to any authority/ agency/ exchequeras a result of the contravention;

� economic benefits accruing to the contravener from delayedcompliance or compliance avoided;

Factor- considered at time of passing CO

compliance or compliance avoided;

� the repetitive nature of the contravention;

� The track record and/or history of non-compliance of thecontravener;

� Submissions made during the personal hearing; and

� any other factor as considered relevant and appropriate

01-Jul-19 101

� The amount to be imposed on compounding is calculated as below:

Calculation of compounding amount

Type of contravention Formula

1] Reporting ContraventionsA)FEMA 20Para 9(1)(A), 9(1)(B), FCTRS (Reg. 10) and taking on record FCTRS (Reg. 4)B) FEMA 3

Fixed amount : Rs10000/- (appliedonce for each contravention in acompounding application) +Variable amount as under:Upto 10 lakhs: 1000 per year

01-Jul-19 102

B) FEMA 3Non submission of ECB statementsC) FEMA 120Non reporting/delay in reporting of acquisition/setup of subsidiaries/step down subsidiaries /changes in the shareholding pattern.D) Any other reporting contraventions (except those in Item 2 below)

Upto 10 lakhs: 1000 per yearRs.10-40 lakhs: 2500 per yearRs.40-100 lakhs: 7000 per yearRs.1-10 crore : 50000 per yearRs.10 -100 Crore : 100000 per yearAbove Rs.100 Crore: 200000 peryear

Type of contravention Formula

E) Reporting contraventions by LO/BO/PO

As above, subject to ceiling of Rs.2 lacs. Incase of Project Office, the amount ofcontravention shall be @10% of total projectcost.

2] AAC/ APR/ Share certificate delaysIn case of non-submission/ delayed submission of APR/ share certificates (FEMA 120) or AAC (FEMA 22) or FCGPR (B) Returns (FEMA 20) or FLA

Rs.10000/- per AAC/APR/FCGPR (B) Returndelayed.Delayed receipt of share certificate –Rs.10000/- per year, the total amount beingsubject to ceiling of 300% of the amount

01-Jul-19 103

FCGPR (B) Returns (FEMA 20) or FLA Returns (FEMA 20 (R))

subject to ceiling of 300% of the amountinvested.

3] A] Allotment/RefundsPara 8 of FEMA 20/2000-RB (non-allotment of shares or allotment/ refund after the stipulated 180 days)B] LO/BO/PO(Other than reporting contraventions)

Rs.30000/- + given percentage:1st year : 0.30%1-2 years : 0.35%2-3 years : 0.40%3-4 years : 0.45%4-5 years : 0.50%>5 years : 0.75%For PO the amount of contravention shall be deemed to be 10% of the cost of project

Type of contravention Formula

4] All other contraventions exceptCorporate Guarantees but includingall contraventions of FEMA20(R)/2017-RB dated November07,2017 other than FLA Returns

Rs.50000/- + given percentage:1st year : 0.50%1-2 years : 0.55%2-3 years : 0.60%3-4 years : 0.65%4-5 years : 0.70%> 5 years : 0.75%

01-Jul-19 104

> 5 years : 0.75%

5] Issue of Corporate Guaranteeswithout UIN/ without permissionwherever required /open endedguarantees or any other contraventionrelated to issue of Corporate Guarantees.

Rs.500000/- + given percentage:1st year : 0.050%1-2 years : 0.055%2-3 years : 0.060%3-4 years : 0.065%4-5 years : 0.070%>5 years : 0.075%In case the contravention includesissue of guarantees for raising loanswhich are invested back into India, theamount imposed may be trebled.

� The contraventions (except FLAR) of FEMA 20 existing andcontinuing as on November 07, 2017 (i.e. the starting date ofcontraventions prior to November 07, 2017) will becompounded as per 1(A) above.

� The above amounts are presently subject to the following:

i. the amount imposed should not exceed 300% of the amount ofcontravention

ii. In case the amount of contravention is less than Rs. One lakh,ii. In case the amount of contravention is less than Rs. One lakh,the total amount imposed should not be more than amount ofsimple interest @5% p.a. calculated on the amount ofcontravention and for the period of the contravention in caseof reporting contraventions and @10% p.a. in respect of allother contraventions.

iii. In case of paragraph 8 of Schedule I to FEMA 20/2000 RBcontraventions, the amount imposed will be further graded asunder:

01-Jul-19 105

� If the shares are allotted after 180 days without the prior approvalof Reserve Bank, 1.25 times the amount calculated as per tableabove

� If the shares are not allotted and the amount is refunded after180 days with the Bank’s permission: 1.50 times the amountcalculated as per table above

� If the shares are not allotted and the amount is refunded after� If the shares are not allotted and the amount is refunded after180 days without the Bank’s permission: 1.75 times the amountcalculated as per table above

iv. In cases where it is established that the contravener has madeundue gains, the amount thereof may be neutralized to areasonable extent by adding the same to the compoundingamount calculated as per chart.

01-Jul-19 106

� Compounding may be subject to a penalty up to thrice the suminvolved in such contravention where such amount isquantifiable,

or

� up to Rs 2 Lakhs where the amount is not quantifiable.

and

Penalties-Quantum of penalty (section 13)

and

� where such contravention is a continuing one, further penaltywhich may extend to Rs 5000/-for every day after the first dayduring which the contravention continues.

01-Jul-19 107

� The contravention penalty should be paid within 15 days fromthe date of the order.

� In case of non-payment of the amount indicated in thecompounding order within 15 days of the order, it will be treatedas if the applicant has not made any compounding application tothe RBI.

Time limit for payment of contravention penalty

the RBI.

� Such cases will be referred to the Directorate of Enforcement fornecessary action.

01-Jul-19 108

� On realization of the sum for which contravention iscompounded, a certificate shall be issued by the Reserve Bankindicating that the applicant has complied with the order passedby the Compounding Authority.

� There cannot be a second adjudication by any authority on thecontravention compounded.

How does the application finally get disposed of?

contravention compounded.

� In terms of FEMA, 1999, where a contravention has beencompounded, no proceeding or further proceeding, as the casemay be, can be initiated or continued, as the case may be, againstthe person committing such contravention under that section, in

respect of the contravention compounded.

01-Jul-19 109

� As compounding is based on voluntary admissions anddisclosures, there is:

� no provision under the Compounding Rules for an appealagainst the order of the Compounding Authority or

� for a request for reduction of amount compounded or

� extension of period for payment of the amount imposed.

Appeal against the Compounding Order

� extension of period for payment of the amount imposed.

01-Jul-19 110

� In case the application has to be returned where requiredapprovals are not obtained from the authorities concerned, or

� in case of incomplete application for any other reason,

� the application fees of Rs.5000/-, received along with theapplication will be returned by crediting the same to theapplicant’s account through NEFT.

Cases in which Application fees will be return

applicant’s account through NEFT.

01-Jul-19 111

� The RBI vide notification dated 7th November 2017, has laiddown a simple procedure for payment of late fees to regularisethe instances of delay in reporting requirement Under FDI.

� The payment of LSF is an option for regularizing reportingdelays without undergoing compounding procedure.

� Minimum applicable LSF shall be INR 100.

Late Submission Fees (LSF)

� Minimum applicable LSF shall be INR 100.

� The % of LSF will be doubled every twelve months.

� The RBI vide Circular No. 17 dated January 16, 2019, hasintroduce LSF to regularize the delay in compliance of ECBguidelines.

01-Jul-19 112

� For ECB Reporting

Calculation of LSF

Sr. No Type of Return/Form Period of delay LSF (INR)

1 Form ECB 2Up to 30 calendar days from due

date of submission5,000

2 Form ECB 2/Form ECBUp to 3 years from due date of submission/date of drawdown

50,000 per year

3 Form ECB 2/Form ECBBeyond 3 years from due date of submission/date of drawdown

100,000 per year

� For FDI reporting

01-Jul-19 113

3 Form ECB 2/Form ECBsubmission/date of drawdown year

S. NoAmount involved

in reportingLSF as % of amount involved

Maximum amount of LSF

1 Up to 10 million 0.05 %Lower of:

Rs. 1 million or300% of the amount involved

2 More than 10 million 0.15%

Lower of:Rs.10 million or

300% of the amount involved

01-Jul-19 114