Complying with RBI compliance and foreign investment regulations in India can often feel daunting—particularly when it comes to filing Form DI (Downstream Investment) on the RBI’s Foreign Investment Reporting and Management System (FIRMS) portal.
This filing is mandatory for entities such as Alternative Investment Funds (AIFs) that qualify as Foreign Owned and Controlled Companies (FOCCs).
When is an AIF considered an FOCC?
An AIF is considered an FOCC if its sponsor, manager, or investment manager:
- is not owned and controlled by resident Indian citizens, or
- is owned or controlled by non-resident individuals or entities.
Once classified as an FOCC, every investment made through the AIF is treated as an Indirect Foreign Investment, requiring Form DI to be filed within 30 days of equity allotment.
However, users frequently encounter technical errors and procedural hurdles on the FIRMS portal. Drawing from practical experience, we highlight below some of the most common challenges—and how to resolve them efficiently.
CIN Error During Business User Registration
Issue: Registration as a Business User (BU) may fail if the investee entity’s details are missing from the FIRMS portal.
Solution: Request the investee entity to update its Entity Master on FIRMS. Once done, BU registration proceeds smoothly.
Mismatch in Investee Company Name
Issue: The company name on FIRMS doesn’t match MCA records (e.g., post-rebranding), causing rejection or delays.
Solution: Ask the investee company to update its name on FIRMS to align with MCA and RBI records.
CIN Not Updated (Conversion from Private to Public, etc.)
Issue: A company’s conversion (e.g., from Pvt. Ltd. to Ltd.) may not be reflected, leading to validation errors.
Solution: Have the investee company update its CIN on FIRMS with proof (new incorporation certificate). Until then, filings remain blocked.
Entity Flagged as Under ED Investigation
Issue: If the entity is flagged as under Enforcement Directorate (ED) investigation, the bank cannot approve Form DI.
Solution: Verify the status. If flagged in error, request an update to the Entity Master with evidence. If under genuine investigation, seek legal guidance, as approval will likely be on hold.
Delay Beyond 30 Days – Late Submission Fee (LSF)
Issue: Delayed filings attract LSF, payable within 30 days, and RBI must be notified within two hours of payment (before 1 PM).
Solution: Calculate and pay LSF promptly via the portal and email intimation to RBI within the time window. Use internal reminders to avoid missing deadlines.
Amount Mismatch Due to Decimal Restrictions
Issue: The FIRMS portal limits the issue price to three decimal points, creating mismatches in total consideration.
Solution: Attach a clarification letter with detailed calculations to explain rounding differences. Transparency helps avoid rejection.
Multiple Securities, Single Bank Debit
Issue: When several securities are bought in one day, the bank statement may show a single debit, complicating allocation.
Solution: Provide a summary sheet detailing each transaction and the corresponding consideration for clarity.
Conclusion
Filing Form DI can be intricate due to frequent data mismatches, system limitations, and procedural nuances, but most issues are solvable with timely coordination between the AIF, investee company, and authorized dealer bank. Staying updated on RBI guidelines and maintaining accurate documentation is crucial for smooth foreign investment in India and can help prevent delays and penalties.
For professional assistance with Form Downstream Investment filings or other foreign investment compliances, contact KDP Accountants at enquire@kdpaccountants.com.
Frequently Asked Questions
Is DI Filing Mandatory for AIFs?
Yes, it is mandatory only if the AIF qualifies as an FOCC, and it is required to file Form DI with RBI within 30 days of the equity allotment.
What is the timeline for filing Form DI with RBI?
Form DI should be filed within 30 days of the date of allotment.
What are the documents required for Filing Form DI?
To file Form DI, you generally need a standard declaration, contract notes (in case of listed securities), KYC document of the investor entity, acknowledgement copy of DPIIT filings.
What happens when DI Forms are filed delayed?
If the DI Form is submitted after the deadline, the Late Submission Fees (LSF) will be applied. If the delay is beyond the prescribed time limit by RBI, you will be required to approach RBI for a compounding of the offence.
How do I approach RBI for compounding?
You are required to complete the filing and then file a petition before the compounding bench of the RBI of the jurisdiction of the investee company. The compounding bench advises for a hearing (either in person or online) and once the hearing is completed, an order (popularly known as ‘compounding order’ is passed by the bench. You are then advised to pay the compounding fee, and the matter is treated as closed.
How much compounding fee is levied?
This depends upon the amount invested and the number of days of delay. Based on this, a metric is prescribed that computes the compounding fee.
Is compounding order final or appealable?
The compounding order is appealable.
