Exercise 1:

1) Can Edwina directly subscribe to the MoA of Jawahar? What is the sectoral cap to which
Edwina’s investment shall be subjected to?

The Memorandum of Association and Articles of Association are the two crucial documents that

describe the constitution and govern the internal management of the company. The memorandum

confirms that the subscribers wish to form a company and agree to become the first members of the

company. In the case of a company that is to have a share capital, they undertake to subscribe for at

least one share each.

‘Sectoral cap’ is the maximum foreign investment by persons resident outside India in capital

instruments of a company in India on repatriation basis. FDI policy permits 100 percent investment

under automatic route in more than 92.5% of the sectors across economy. Automatic Route means

that the non-resident investor or the Indian company does not require any approval from

Government of India for the investment.

Subject to the sectoral policy on foreign investments and non-resident holding limits applicable to an

Indian company, the entire share capital of a company may be held by non-residents. There is no

restriction on a non-resident being a subscriber to the Memorandum of Association. However, some

procedural aspects under Companies Act, 2013, needs to be taken care of.

Special procedure as to the legal validity is followed in case of subscription to Memorandum of

Association (MoA) as a measure of safeguard for tracing Foreign Nationals in case of default.

#Country of origin means the country of which a person holds a valid passport.

Subscription under Companies Act, 2013

As per the relevant provisions of the Act, in case of subscription to MoA by a foreign national, his

signature, address and proof of identity is required to be verified in the following manner {Rule 13 of

Companies (Incorporation) Rules, 2014}:

If the foreign national is residing:

  in a country in any part of the Commonwealth, to be notarized by a Notary

(Public) in that part of the Commonwealth.

 in a country which is a party to the Hague Apostille Convention, 1961, to be

notarized before the Notary (Public) of the country of his origin and be duly

apostillised in accordance with the said Hague Convention.

 in a country outside the Commonwealth and which is not a party to the

Hague Apostille Convention, 1961, to be notarized before the Notary

(Public) of such country and the certificate of the Notary (Public) shall be

authenticated by a Diplomatic or Consular Officer empowered in this behalf.

Subscription to MOA by a Edwain

It may also be noted that in case a foreign body corporate wants to be a subscriber (as it happens in

case of wholly-owned subsidiaries), it can do so by duly authorizing its director, officer or

employee, by way of a Board Resolution, for this purpose, clearly specifying the number of shares

being subscribed. The said authorized person shall sign the MOA on behalf of the body corporate.

Such Board Resolution shall be notarized, apostilled and/or cosularised in the country of origin as

per clause (a) above.

The Central Government has enhanced FDI limit in Defence Sector up to 74% through the Automatic
Route for companies seeking new defence industrial license and up to 100% by government Route
wherever it is likely to result in access to modern technology.

2) What are the various formalities and compliances required to be completed for Edwina’s
investment into Jawahar Revolvers? Are the same formalities and compliances applicable
to Mr Mohandas? If not, set out the same.

Under the FDI Compliances in India, the money overseas is available for investment in an

organization established in India. In India, the Foreign Direct Investment (FDI) policy is regulated

under the FEMA (Foreign Exchange Management Act), 1999. The Reserve Bank of India (RBI) governs

the Foreign Direct Investment Policy of India. As per the international regulatory authority

Organization for Economic Cooperation and Development (OECD), an investment of more than 10%

or 10% from overseas is considered as FDI.                

The overseas money either by an entity or individual is invested in a Corporation in India. An

investment can be made by a person or company in one country for business interest in another
country. Such an investment can be made to either obtain business resources or set up business

operations in another country. An example of such an investment is controlling or ownership

interest in a foreign organization.

The different bodies constituted for FDI Compliances in India are as follows:

 Foreign Investment Promotion Council (FIPC);

 Foreign Investment Promotion Board (FIPB);

 Secretariat for Industrial Assistance (SIA);

 Department of Industrial Policy & Promotion (DIPP); and

 Foreign Investment Implementation Authority (FIIA).

FDI Compliances for a Private Limited Company

Any business entity overseas can enter the territory of India through a number of alternatives. There

are certain general conditions that are required to be followed.

The general conditions are mentioned in the FDI Policy, which is as follows:

 As an Indian Entity or Company:

 The Operation should be as a foreign company, and the registration of the company should

be with the Registrar of Companies (ROC) under the Ministry of Corporate Affairs.

 A Liaison, branch office or a foreign office should be set up in India. The Liaison Office is only

permitted to collect all the required market information and liaison for the foreign company.

The foreign companies are not allowed to earn any type of income from any activities.

 The foreign companies are also required to open Branch Offices. The primary scope of the

activities of Branch Offices is much broader as compared to the other Liaison Offices.

The application for setting up of offices in India is required to be made in Form FNC-1 to Reserve Bank

of India along with:

 Incorporation Certificate of Company attested by Notary Public or Indian Embassy in their

home country.
  Memorandum of Association certified by Notary Public or Indian Embassy in their home

country.

 Articles of Association certified by Notary Public or Indian Embassy in their home country.

 The latest Audited Balance Sheet of the company.

The FNC-1 form is required to be submitted to the designated AD bank for any further submission.

The submissions are made to the relevant department of the Reserve Bank of India (RBI) (Foreign

Investment Division) at Mumbai.

The NRIs are also permitted to contribute to the capital of companies in India. Such a contribution

can be made by investing in the shares on Recognized Stock Exchanges under the Portfolio

Investment Route. The investment done by the people can be repatriable or non-repatriable. The

maximum limit of investment is 10% of the paid-up capital of the relevant company.

The above-mentioned maximum limit can be raised by up to 24%. Such an extension can only be

done by passing a special resolution for the same in the company.

The investment is made as an inward remittance, or through an NRE/FCNR (B)/NRO account

maintained with the AD Category-1 Banks. A detailed report of all such investments is required to be

filed with the Reserve Bank of India by AD Bank.

Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs)
are allowed to invest in the primary and secondary capital markets in India through the portfolio
investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian
companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company
and 10 per cent for NRIs/PIOs. The limit is 20 per cent of the paid up capital in the case of public
sector banks, including the State Bank of India.

The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling,
subject to the approval of the board and the general body of the company passing a special
resolution to that effect. And the ceiling of 10 per cent for NRIs/PIOs can be raised to 24 per
cent subject to the approval of the general body of the company passing a resolution to that effect.

The ceiling for FIIs is independent of the ceiling of 10/24 per cent for NRIs/PIOs.

The equity shares and convertible debentures of the companies within the prescribed ceilings are
available for purchase under PIS subject to:
- the total purchase of all NRIs/PIOs both, on repatriation and non-repatriation basis, being within an
overall ceiling limit of (a) 24 per cent of the company's total paid up equity capital and (b) 24 per
cent of the total paid up value of each series of convertible debenture; and

- the investment made on repatriation basis by any single NRI/PIO in the equity shares and
convertible debentures not exceeding five per cent of the paid up equity capital of the company or
five per cent of the total paid up value of each series of convertible debentures issued by the
company.

The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a
daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed
cut-off points that are two percentage points lower than the actual ceilings. The cut-off point, for
instance, is fixed at 8 per cent for companies in which NRIs/ PIOs can invest up to 10 per cent of the
company's paid up capital. The cut-off limit for companies with 24 per cent ceiling is 22 per cent and
for companies with 30 per cent ceiling, is 28 per cent and so on. Similarly, the cut-off limit for public
sector banks (including State Bank of India) is 18 per cent.

Once the aggregate net purchases of equity shares of the company by FIIs/NRIs/PIOs reach the cut-
off point, which is 2% below the overall limit, the Reserve Bank cautions all designated bank
branches so as not to purchase any more equity shares of the respective company on behalf of
FIIs/NRIs/PIOs without prior approval of the Reserve Bank. The link offices are then required to
intimate the Reserve Bank about the total number and value of equity shares/convertible
debentures of the company they propose to buy on behalf of FIIs/NRIs/PIOs. On receipt of such
proposals, the Reserve Bank gives clearances on a first-come-first served basis till such investments
in companies reach 10 / 24 / 30 / 40/ 49 per cent limit or the sectoral caps/statutory ceilings as
applicable. On reaching the aggregate ceiling limit, the Reserve Bank advises all designated bank
branches to stop purchases on behalf of their FIIs/NRIs/PIOs clients. The Reserve Bank also informs
the general public about the `caution’ and the `stop purchase’ in these companies through a press
release.

Exercise 2:

1)After accepting investment from Chizu, would it be possible for SellFirst to directly purchase the
dairy products and groceries from dairy farmers and cultivators for delivering the same to
customers? If yes, how?

 Yes as per FDI , foreigner company invested under B2C business.

2)SellFirst has a plan to collaborate with reputed brands like Amul and Tata Sampann to showcase &
sell their products on its portal. What are the applicable restrictions?

There are no restrictions under this .