Foreign Investments in India

By CS GAURAV

9990694230

gauravdelhirav@gmail.com

www.csgauravsharma.com

procedure for receiving Foreign Direct Investment in an Indian company

An Indian company may receive Foreign Direct Investment under the two routes:

i. Automatic Route FDI is allowed under the automatic route without prior approval either of the

Government or the Reserve Bank of India in all activities/sectors as specified in the

consolidated FDI Policy, issued by the Government of India from time to time.

ii. 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.

Instruments for receiving Foreign Direct Investment in an Indian

company

Foreign investment is reckoned as FDI only if the investment is made in

equity shares,

fully and mandatorily convertible preference shares and

fully and mandatorily convertible debentures with the pricing being decided

upfront as a figure or based on the formula that is decided upfront.

Partly paid equity shares and warrants issued by an Indian company in

accordance with the provision of the Companies Act, 2013 and the SEBI

guidelines, as applicable, shall be treated as eligible FDI instruments w.e.f.

July 8, 2014 subject to compliance with FDI scheme.

Any foreign investment into an instrument issued by an Indian company which:

gives an option to the investor to convert or not to convert it into equity or

does not involve upfront pricing of the instrument as a date would be reckoned

as ECB and would have to comply with the ECB guidelines.

The FDI policy provides that the price/ conversion formula of convertible capital

instruments should be determined upfront at the time of issue of the

instruments.

Modes of payment allowed for receiving Foreign

Direct Investment in an Indian company

An Indian company issuing shares /convertible debentures under FDI

Scheme to a person resident outside India shall receive the amount of

consideration required to be paid for such shares /convertible debentures

by:

(i) inward remittance through normal banking channels.

(ii) debit to NRE / FCNR account of a person concerned maintained with

an AD category I bank.

(iii) conversion of royalty / lump sum / technical know how fee due for

payment or conversion of ECB, shall be treated as consideration for

issue of shares.

(iv) conversion of import payables / pre incorporation expenses / share

swap can be treated as consideration for issue of shares with the approval

of FIPB.

To be Continued..

(v) debit to non-interest bearing Escrow account in Indian Rupees in

India which is opened with the approval from AD Category – I bank

and is maintained with the AD Category I bank on behalf of residents

and non-residents towards payment of share purchase

consideration.

If the shares or convertible debentures are not issued within 180

days from the date of receipt of the inward remittance or date of

debit to NRE / FCNR (B) / Escrow account, the amount shall be

refunded. Further, Reserve Bank may on an application made to it

and for sufficient reasons permit an Indian Company to refund / allot

shares for the amount of consideration received towards issue of

security if such amount is outstanding beyond the period of 180 days

from the date of receipt.

Sectors where FDI is not allowed in India, under the both Route

i. Atomic Energy

ii. Lottery Business

iii. Gambling and Betting

iv. Business of Chit Fund

v. Nidhi Company

vi. Agricultural (excluding Floriculture, Horticulture, Development of seeds,

Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms,

etc. under controlled conditions and services related to agro and allied

sectors) and Plantations activities (other than Tea Plantations)

vii. Housing and Real Estate business (except development of townships,

construction of residential/commercial premises, roads or bridges

viii. Trading in Transferable Development Rights (TDRs).

ix. Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of

tobacco substitutes.

Procedure to be followed after investment is made under both Route

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

Foreign Exchange Department, 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.

The Indian company has to ensure that the shares are issued within 180 days

from the date of inward remittance which otherwise would result in the

contravention / violation of the FEMA regulations.

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 Foreign Exchange

Department, Regional Office concerned of the Reserve Bank of India.

Certificate from the Company Secretary of the company accepting investment from

persons resident outside India certifying that the company has complied with the

procedure for issue of shares as laid down under the FDI scheme.

The investment is within the sectoral cap / statutory ceiling permissible under the

Automatic Route of the Reserve Bank and it fulfills all the conditions laid down for

investments under the Automatic Route,

OR

Shares have been issued in terms of SIA/FIPB approval No. --------------------- dated ---------

----------- (enclosing the FIPB approval copy)

Certificate from Statutory Auditors/ SEBI registered Merchant Banker / Chartered

Accountant indicating the manner of arriving at the price of the shares issued to the

persons resident outside India.

Other modes of issues of shares for which general

permission is available under RBI

Issue of shares under ESOP by Indian companies to its employees or

employees of its joint venture or wholly owned subsidiary abroad who are

resident outside India directly or through a Trust up to 5% of the paid up

capital of the company.

Issue and acquisition of shares by non-residents after merger or de-merger

or amalgamation of Indian companies.

Issue shares or preference shares or convertible debentures on rights basis

by an Indian company to a person resident outside India.

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