Fdi in India ! -Rbi Regulations

FOREIGN DIRECT INVESTMENT (FDI)

Under the Foreign Direct Investments (FDI) Scheme, investments can be made in shares, mandatorily and fully convertible debentures and mandatorily and fully convertible preference shares1 of an Indian company by non-residents through two routes: • Automatic Route: Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. • Government Route: Under the Government Route, the foreign investor or the Indian company should obtain prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) for the investment. Foreign investment in the form of FDI is prohibited in certain sectors: • Retail Trading • Lottery business. (Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.) • Gambling and betting • Chit fund business • Nidhi company ( private company indulge in Lending money) • Trading in transferable Development Rights (TDR’s) • Real estate business or Construction of farm house (except Townships, housing, built-up infrastructure and construction-development projects) • Manufacturing of tobacco or substitutes • Activities which are not open to private sector
Procedure and time limit: • Once the fund received, within 30 days Annexure II should be submitted to RBI. • Shares should be allotted to the remitter within 180 dates from the date of receipt of funds • If the shares are freshly issued, Form FC-GPR (Foreign Collaboration – General Permission Route) should be reported within 30 days from the date of allotment of shares. • If the Shares are transferred, Form FC-TRS (Foreign Collaboration – Transfer of Shares) should be reported within 60 days from the date of transaction i.e. date of receipt of funds)
Documents should be checked in each case: I. Intimation report (Annexure II)
|Sr. No |Documents |Check points |
|1. |Form FC-GPR Annex II |1.All fields of the form are fully and Correctly filled. |
| | |2.Check whether AD’s stamp and signature is affixed in the |
| | |form. |
| | |3.Check whether that Annex II is received before 30 days from |
| | |the date of receipt of funds. |
|2. |FIRC (Foreign Inward Remittance Certificate) |1.check whether Amount of remittance is matching with the |
| | |amount mentioned in AnnexII |
| | |2.check the purpose of the inward remittance |
| | |3.check the name of the beneficiary and address. |
|3. |KYC (Know your Customer) {FC-GPR Annex III} |1.Check whether KYC is in Specified format. |
| | |2.whether it is completely filled in. |
| | |3.Whether signature of the authorized signatory of the AD is |
| | |affixed on the last page of the KYC ( FC-GPR Annex III) along |
| | |with date and place |
| | |4.The address of the foreign collaborator should match with |
| | |the FIRC |
|4. |NOC (non objection certificate) |It will be in place only where the remitter and beneficiary |
| | |are different persons. |

The checklist of Intimation report (Annex II) prepared every time when we get Annex II for checking, it is attached below:
[pic]
II. FC-GPR (Foreign Collaboration – General Permission route)
|Sr. No |Documents |Check points |
|1. |Form FC-GPR |1.FC-GPR form should be fully filled in correctly. |
| | |2.check the name of the country in which shares are issued. |
| | |(Since, shares are not permitted to persons in Bangladesh and |
| | |Pakistan) |
| | |3.NIC code should be checked as per the RBI NIC Code list : |
| | |[pic] |
| | |4.Check whether the breakup of premium if shares are issued at|
| | |Premium. |
| | |5.Check the date of submission of intimation report ( Annexure|
| | |II ) which should be within 30 days from the date of receipt |
| | |of funds. |
| | |6.Check whether the shares are allotted within 180 days from |
| | |the date of receipt of funds. |
| | |7.Check whether the FC-GPR form received before 30 days from |
| | |the date of allotment |
|2. |CA Certificate about valuation of shares |1.check the nature of shares issued. |
| | |2.The Share issue price should be equal or more than the issue|
| | |price mentioned in the CA certificate |
| | |3.Certificate Should contain CA Signature and Membership no. |
| | |4. The method adopted by CA should be “Discounted Cash Flow” |
| | |(DCF) but if shares are allotted before May, 2010 the method |
| | |of valuation Should be “Controller of Capital Issues” (CCI) |
|3. |CS certificate |Check whether the certificate is obtained from the CS. |
|4. |FIRC (Foreign Inward Remittance Certificate) |1.check whether the complete name and address of the foreign |
| | |collaborator has been mentioned properly. |
| | |2.The purpose of remittance should be in line with the |
| | |transaction i.e. Share application |
| | |3.check whether the amount mentioned in FIRC is matching with |
| | |the Documents submitted |
| | | |
| | |Note: In some cases FIRC will not be issued. Where Cash is not|
| | |remitted, Such cases are mentioned below. |
|5. |RBI Acknowledgement |1.check whether the date of submission of intimation report is|
| | |matching with the Acknowledgement copy of RBI |
|6. |Board Resolution |For confirming the date of allotment of shares. |

The checklist of FC-GPR prepared every time when we get Annex II for checking, it is attached below:
[pic]

III. FC-TRS (Foreign Collaboration – Transfer of Shares)

In case of transfer of shares, transfer can be between Residents (seller) to Non Resident (buyer) or Non Resident (seller) to Residents (buyer). In both the cases the document requirements differs.
Resident (seller) to Non-resident (buyer) needs following document:

➢ FC-TRS Form (4 copies)

➢ Consent letter from buyer and Seller

➢ Declaration from buyer

➢ Post Shareholding pattern

➢ CA Certificate (valuation)

➢ FIRC and KYC

Non-resident (seller) to Resident (buyer) needs following document:

➢ FC-TRS Form (4 copies)

➢ Consent letter from buyer and seller

➢ Declaration of buyer

➢ Post Shareholding pattern

➢ CA Certificate (valuation)

➢ Form A2

➢ Form 15CA and 15CB

|Sr. No |Documents |Check points |
|1. |Form FC-TRS |1.Check whether the FC-TRS Form is duly filled. |
| | |2. NIC code should be checked as per the RBI NIC Code list |
| | |: |
| | |[pic] |
| | |3.Four copies of FC-TRS Form is to be submitted. |
| | |4.FC- TRS Should be signed by Non Resident |
| | |5.Check whether it is reported to RBI with 60 days from the|
| | |date of receipt of funds. |
|2. |Consent letter of Buyer and Seller |The AD should obtain the consent letter of buyer and Seller|
| | |while reporting FC-TRS |
|3. |Declaration of buyer |The buyer should give a declaration that he is eligible to |
| | |buy Shares. |
|4. |CA certificate |1.check the nature of shares issued. |
| | |2.The Share issue price should be equal or more than the |
| | |issue price mentioned in the CA certificate but in the case|
| | |of transfer from Non-resident (Seller) to Resident |
| | |(buyer)the issue price should be equal or below than the |
| | |issue price |
| | |3.Certificate Should contain CA Signature and Membership |
| | |no. |
| | |4. The method adopted by CA should be “Discounted Cash |
| | |Flow” (DCF) but if shares are allotted before May, 2010 the|
| | |method of valuation Should be “Controller of Capital |
| | |Issues” (CCI) |
| | |5.If Shares are traded through stock exchange, then broker |
| | |note Should be attached on behalf of CA Certificate. The |
| | |issue price should be same. |
|5. |Post Share holding pattern |Past shareholding pattern is to be submitted |
|6. |FIRC and KYC |It is required in the case, where shares are transferred |
| | |from resident to Non -resident |
|7. |Form A2 |It is required in the case where shares are transferred |
| | |from Non –resident to resident |
|8. |Form 15CA and 15CB |It is required in the case where shares are transferred |
| | |from Non –resident to resident |

The checklist of FC-TRS prepared every time when we get Annex II for checking, it is attached below:
[pic]

In the following cases, we have to verify High court order / Board Resolution on behalf of FIRC. Since FIRC is not issued in below mentioned cases:

✓ Merger and Amalgamation ( High Court order is compulsory )

✓ Issue of Bonus shares

✓ Conversions of Preference Shares to Equity

✓ ECB to Equity Shares

✓ Royalty to Equity Shares

Some Special Cases under FDI Where Additional document is required:

1. Pharmacy company: in case of pharmacy industries the FDI is 100% Automatic in Greenfield (If it is newly started) and 100% Approval in Brownfield (If it is old )

2. NBFC: Obtain a Special certificate From CS.

3. Construction and Development: CS certificate and Lock in period of 3 years

4. Other cases: a. Face value then no need to follow CA certification. If issued at premium certification from CA at Compulsory b. In the case of right issue, Additional certificate stating that the price are allotted at same price for Resident and Non-resident c. In case of nominee Form 22B is additionally required