BY ARVIND SALVI

1. FOREIGN INVESTMENT IN INDIA PROCEDURE/COMPLIANCE/REPRTING/COMPOUNDING. BY ARVIND SALVI APRIL, 2013

2. FDI Policy Framework • FDI by NRs in Residents Entities through transfer or issue of security to PROI is a Cap. A/c transaction is governed by Sec 6 (3) (b) of FEMA, 1999 & regulations issued there under. The regulatory framework consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc. • Inbound investments- regulated by : • Department of Industrial Policy & Promotion (FC Section), Ministry of Commerce, Government of India makes policy pronouncements on FDI through PNs/PRs. DIPP has released Consolidated FDI Policy vide Circular NO. 1 of 2013 effective 05.04.2013. • RBI has the power to prohibit, restrict or regulate the transfer or issue of any security by a person resident outside India under section 6(3)(b) of the Foreign Exchange Management Act, 1999 (“FEMA”) 2

3. FDI : RBI’s Reg. Framework co… RBI has notified : • Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 ("FEMA 20/2000") and • Foreign Exchange Management (Investment in firm or proprietary concern in India) Regulations, 2000 ("FEMA 24/2000"). The procedural instruction are issued by RBI vide A. P.( Dir. Series .) Circulars

4. Diagrammatic presentation Foreign Investments FDI Portfolio Investments Venture Capital Investments Other investments Investment on non repartriable basis SEBI regd. FVCIs FIIs QFIs NRI, PIO Automatic route Govt Route NRI, PIO VCF, IVCUs PROI FIIs QFIs NRI, PIO 4

5. Sector classification Investment areas – classified as : • Eight sectors are prohibited; • Investment up to 100% under Automatic Route in most of the sectors (like Floriculture, Horticulture, Greenfield Airports projects etc); • Investment in few sectors under Government Route (such as Defence – 26%, Tea-100%, ARC-49%, CIC-49%, Commodity Exchanges-49%, S.Exs.-49%, Satelite-74%). • Few sectors – Automatic route up to certain limits and beyond such limits, up to a sectoral cap, under Govt., route ( Telecom).

6. Eligibility of FDI in resident entities FDI in Indian company Investment by any person not resident in India [ Other than citizen/entity of Pakistan. Citizen/entity of Bangladesh only with the approval of Government ]. FDI in Partnership firm / proprietary concern - BY NRI / PIO - Permitted if remittance out of NRE / FCNR / NRO account / Not engaged in any agriculture / plantations/print media or real estate business. Only on non-repatriation basis. - BY NR other than NRI / PIO and with repartition– prior approval of RBI. FDI in Trust Not permitted other than Venture Capital Fund FDI in other Entities Not permitted 6

7. Caps on inbound investment As per Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000:

8. Caps on inbound investment

9. Procedure Investing in India Automatic route Approval route • FIPB prior approval • Application for approval with FIPB. • Inform RBI within 30 days • Inform RBI within 30 days of remittance / Issue of shares. Entry conditions would be applicable to non residents only. Such conditions include- minimum capitalization and lock-in-period. 9 9

10. Compliance with…. • Policy; • Instruments; • Manner of receipt of investment; • Time limit for issue of shares; • Pricing guidelines; • Certification; • Reporting

11. Manner of Receipt of consideration • Cash - - Inward remittance - Debit to NRE, FCNRB, NRO a/c. - FII Special Rupee a/c – Escrow a/c. • Non-cash - ECB, Royalty, lump-sum fees, - Import of capital goods / machinery / equipment - Pre-operative /pre-incorporation expenses (including payment of rent, etc.)

12. Pricing Guidelines.. Specific pricing guidelines applicable to the following :- • FDI Scheme ; • Rights Issue ; • Preferential allotment ; • Private placement with FIIs ; • ADRs/GDRs ; • FVCIs ; • Gift by R to NR ; • SEBI guidelines for specific purposes.

13. Returns to be submitted.. • Inflow reporting; • FC-GPR; • Annual Assets / Liabilities statement; • FC-TRS; • ADRs/GDRs

14. Reporting of FDI • Reporting of inflow • within 30 days from the date of receipt of funds along with copy of FIRC and KYC report through AD Category I . • Time frame for issue of shares • Equity instruments are to be issued within 180 days from the date of receipt of funds. • Otherwise amount to be refunded immediately by outward remittance.

15. Reporting of FDI contd. FG-GPR reporting : • To RO-RBI within 30 days [issue / ECB / lump-sum, ESOP, others]; - Certification by the Indian company ; - Certification by the company Secretary; - Certification of pricing by SA/CA/MB; - KYC in r/o NR investor by AD. • To DSIM-RBI [Annual on July 15] – Foreign liabilities and assets as on March 31 (AP-DIR-45/15.03.11) [ FLA Form modified : A.P. (Dir) Cir. No.133/25.6.2012 ].

16. Repatriation • Sale proceeds of investment; • Winding-up proceeds; • Liquidation proceeds; • Dividends; • Interest; • Refund of advance remittance (Through AD, subject to tax compliance)

17. Types of contraventions.. • Receipt of funds before incorporation; • Acceptance of investment without Govt., approval; • Delay in reporting of inflow; • Delay in reporting of allotment; • Non-observance of pricing guidelines; • Delay in issue of shares or refund.

18. Issues.. • Tax Residency Certificate; • Call/put options; • Pricing guidelines; • Schedules (investor specific); • Various categories of investors; • Sectoral caps; • Alternate Foreign Investors; • Transfer pricing; • BIPPAs; • Source of funds.

19. Penal provisions… Contravention of regulatory frame work is governed by :- • Sec. 13 : What contravention means; • Sec. 14 : Adjudication procedure; • Sec. 15 : Compounding; and • Sec. 49 : FERA cases.

20. THANK YOU