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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.
ii.
iii.
iv.
v.
vi.

Atomic Energy
Lottery Business
Gambling and Betting
Business of Chit Fund
Nidhi Company
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.