Reporting FDI to Reserve Bank of India since inception till date in FIRMS

All are aware that as per the RBI/2017-18/194 A.P (DIR Series) Circular No.30 dated 7 June 2018, Indian Entities are required to input their existing Foreign Investment including Indirect Foreign Investment in FIRMS by 20 July 2018.

Everyone can identify Direct Foreign Investment by looking at their shareholder's list and the other KYC Details.

The questions which can come into one’s mind are:-

Which entities are covered in “Indian Entities”?

As per Master Direction on FDI updated as of 4 January 2018,

Indian Entity:-

2.11 ‘Indian entity’ is an Indian company or an LLP.

What is the “Indirect Foreign Investment”?

As per Master Direction on FDI updated as of 4 January 2018, 

Indirect Foreign Investment:-

9.1.15 ‘Indirect Foreign Investment’ is downstream investment received by an Indian entity from:

·       another Indian entity (IE) which has received foreign investment and which is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India;

or

·       an investment vehicle whose sponsor or manager or investment manager is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India

"The critical aspect will be determining “owned or controlled by persons resident outside India”. 

What if the Indian Entity has not reported FDI to RBI when it was received?

Entities shall provide data with respect to all foreign investments received, irrespective of the fact that the regulatory reporting to the Reserve Bank of India for the same has been made or not and whether the same has been acknowledged or not.

What are the Consequences of Non-Reporting of FDI to RBI in FIRMS?

Indian entities will not be able to receive foreign investment (including indirect foreign investment) and will be treated as non-compliant with Foreign Exchange Management Act, 1999 (FEMA) and regulations made thereunder and liable for action as laid in FEMA or the regulations made thereunder.

What is the Penalty for contravention under FEMA? 

Penalties – (prescribed under Sec.13)

Up to thrice the sum involved in such contravention where such amount is quantifiable OR 

up to two lakh rupees where the amount is not quantifiable AND

where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.