INSTANCES WHEREIN FORM DI CAN BE USED UNDER FEMA

FEMA stands for ‘Foreign Exchange Management Act’, an official Act that consolidates and
amends laws regulating foreign exchange in India. The main objective of FEMA was to help
facilitate external trade and payments in India. It was also meant to help orderly development
and maintenance of foreign exchange market in India. It defines the procedures, formalities,
dealings of all foreign exchange transactions in India.

DOWNSTREAM INVESTMENT-

Downstream investment is an investment made by an Indian entity which has total foreign
investment in it or an Investment Vehicle in the capital instruments or the capital, as the case
may be, of another Indian entity. If the investor company has total foreign investment in it
and is not owned and not controlled by resident Indian citizens or is owned or controlled by
persons resident outside India then such investment shall be “Indirect Foreign Investment”
for the investee company. It is defined in Regulation 14(g) of the FDI Regulations.

An Indian company (owned or controlled by persons resident outside India or not owned and
not controlled by resident Indian citizens (FOCC)) investing in instruments other than capital
instruments of another Indian company will not be treated as a 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 Committee under
the FEMA regulations shall file a DI form with the Reserve Bank of India.

FORM DI-

As per Regulation-13.1.11 of FEMA FDI Regulations, 2017 , an Indian company making

downstream investment in another Indian company which is considered as indirect foreign
investment for the investee company in terms of FDI Regulations, shall intimate the
Secretariat for Industrial Assistance, DIPP and file “Form DI” within 30 days of such
investment and, even if capital instruments have not been allotted along with the modality of
investment in new/existing ventures (with/without expansion programme).

With effect from 1st September,2018, an Indian entity or an Investment Vehicle making
downstream investment in another Indian entity which is considered as indirect foreign
investment for the Indian entity in terms of Regulation 14 of FEMA FDI Regulations,2017
shall file “Form DI with the Reserve Bank of India (RBI) within 30 days from the date of
allotment of capital instruments.”

Time Limit- The Indian Entity making downstream investment in another company, which
falls under the purview of indirect foreign investment for the investee company shall make
the Reporting in Form DI within a period of thirty days from that investment. The time limit
of the reporting requirement shall remain as thirty days from the date of such investment,
even if the capital instruments have not been allotted by the investee company.

Consequences of late filing of DI- If the company makes the report of the Downstream
Investment after the prescribed period of 30 days from the investment, then the company
shall be liable to late submission fees as decided by the RBI in consultation with the Central
Government.

APPLICABLE REGULATION-

It is regulated by the Foreign Exchange Management (Transfer or Issue of Security by a

Person Resident Outside India) Regulations, 2017.

CONDITIONS TO BE FULFILLED FOR MAKING DOWNSTREAM

INVESTMENT-

 Approval of Board of Directors/ Shareholder agreement

 The company making downstream investment shall invest only the funds received as
remittance from abroad and shall not use any borrowed fund from the domestic
market.
 Internal accruals can be used for making downstream investment.
 Transfer of capital instrument of investee company
 Reporting obligation
 Certificate from Statutory auditor

DOCUMENTS REQUIRED FOR FILING FORM DI FOR REPORTING OF

DOWNSTREAM INVESTMENT-

 Declaration by authorized representative.

 Pre and Post Transaction shareholding pattern
 Board Resolution
  Shareholders Resolution
 Reason for delay in submission
 Valuation Certificate

PROCESS FOR FILING OF FORM DI FOR REPORTING DOWNSTREAM

INVESTMENT UNDER FEMA-

Step 1- Registration of Entity User on FIRMS portal and attach the requisite documents
(PAN of entity, PAN of authorized representative of the company and the Authority letter in
signed format).

Step 2- Creation of Entity Master by filling the requisite details in the entity master form and
submitting it.

Step 3- Registration for business user on Firms Portal, after selecting and confirming the
IFSC Code of the AD Bank from the drop down.

Step 4- Reporting of Downstream Investment. The company needs to fill all the required
details and attach the relevant documents and then submit the form. After filing of Form DI,
the AD Bank or both AD Bank and RBI as the case may be, will check the form and in case
of any discrepancy found in the form, then they will reject the form giving appropriate reason
or otherwise, they will approve the form. In instances wherein the form gets rejected, the
company needs to file the form again, after removing the discrepancies.