The Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Rules, 2019 (“Reporting Regulations”) impose specific reporting obligations on Foreign Owned and Controlled Companies (FOCCs) that undertake downstream investments in India.
This blog outlines the key definitions, legal interpretations, and reporting forms and timelines required for regulatory compliance.
Definition (as per Regulations)
"Downstream investment" refers to an investment made by an Indian entity that has all of its capital invested by foreigners, or an investment vehicle that invests in the capital of another Indian entity.
Interpretation:
As per the Reporting Regulations:
When an Indian firm receives direct or indirect foreign investment, it must adhere to the relevant foreign investment conditions, including sectoral caps, pricing restrictions, and the entrance route.
Key Concepts Explained
Downstream Investment
An investment made into the equity or capital of another Indian company by an Indian company or investment vehicle that already has foreign investment is known as a downstream investment.
Indirect Foreign Investment:
Indirect foreign investment occurs when an Indian company receives investment from another Indian company that already has foreign ownership. This applies if the investing entity is either:
- not owned and not controlled by Indian citizens or entities controlled by them, or
- If it is owned or controlled by individuals or entities based outside India.
In the case of an investment vehicle where the sponsor, manager, or investment manager is owned or controlled by persons resident outside India.
What is a Foreign-Owned and Controlled Company (FOCC)?
A Foreign Owned and Controlled Company (FOCC) in any business that is owned or managed by an individual who does not reside in India.
Ownership:
A company where more than 50% of its paid-up capital (on a fully diluted basis) is owned by a Person resident outside India. A person who resides outside of India owns more than half of the capital and the majority of the profit share in an LLP.
Control:
In business, control refers to the power to make crucial decisions or influence the company’s direction. This can happen through:
- Appointing a majority of the directors
- Managing or influencing company policies and decisions
- Holding a significant amount of shares or voting rights
- Having rights through shareholder or voting agreements
In case of LLP, control refers to the authority to appoint the majority of designated partners, where these designated partners - to the exclusion of others - exercise control over all the policies of the LLP.
Reporting requirements
An investment by a FOCC in another Indian company qualifies as a downstream investment and requires compulsory reporting under FEMA regulations.
A. Investment in Indian entity by FOCC:
-
DPIIT Intimation (via FIFP):
The FOCC must notify the Secretariat for Industrial Assistance, which operates under the Department for Promotion of Industry and Internal Trade (DPIIT), by providing the necessary information via the Foreign Investment Facilitation Portal (FIFP).
Timeline: Within 30 days of the investment (i.e., date of remittance).
The Reserve Bank of India (RBI) must receive from the DI of the FOCC.
Timeline: Within 30 days from the date of allotment of equity instruments to the Indian investee entity.
B. Other Reporting Requirements:
i. Acquisition from a Non-Resident:
- Form FC-TRS: To be filed within 60 days from the earlier of:
- the date of transfer of equity instruments, or
- the date of receipt/remittance of consideration.
- Form DI: To be filed within 30 days from the date of acquisition (typically after FC-TRS approval).
- FIFP Intimation: Within 30 days of investment.
ii. Acquisition from a Resident:
- Form DI: Filed within 30 days from the date of acquisition.
- FIFP Intimation: Required within 30 days of investment.
iii. Acquisition from Another FOCC:
- This will be treated as a resident-to-resident transaction; no fresh indirect foreign investment is triggered.
- However, for record-keeping and in consultation with the Authorized Dealer (AD) Bank:
- Form DI may be filed within 30 days from the date of acquisition.
- FIFP Intimation may also be submitted within 30 days.
C. Disinvestment by FOCC:
i. Sale to a Non-Resident:
- Form FC-TRS: Must be filed within 60 days from the earlier of:
- the date of transfer of equity instruments, or
- the date of receipt/remittance of consideration.
ii. Sale to a Resident:
- No specific reporting is mandated under the Regulations.
- However, the Indian investee entity might be required to seek amendments in the Entity Master Form (EMF).
iii. Sale to Another FOCC:
- This is a resident-to-resident transaction.
- Form DI may be filed within 30 days by the acquiring FOCC.
- FIFP Intimation may be made within 30 days, post consultation with the AD Bank.
iv. In case of FOCC entity being an Investment Vehicle, Form INVI would be an additional Reporting requirement.
- This transaction is when an investment vehicle issues units to a person resident outside India.
- Within 30 days from the date of issue of units to a person resident outside India.
Annual Compliance – FLA Reporting:
In addition to transaction-level reporting, Indian entities receiving foreign investment must file the Foreign Liabilities and Assets (FLA) Return annually.
- Due Date: By July 15 of each year
- Form: FLA Return via RBI’s FLAIR portal
- Purpose: Report foreign liabilities, assets, and investments.
Summary Table – Key Reporting Forms
| Form |
Purpose |
Timeline |
| Form DI |
Reporting of downstream investment by FOCC |
Within 30 days of allotment/acquisition |
| Form FC-TRS |
Reporting transfer of equity instruments between resident and non-resident |
Within 60 days of transfer/payment |
| FLA Return |
Annual reporting of foreign liabilities and assets |
By July 15 each year |
| FIFP Intimation |
Notification of foreign investment to DPIIT on FIFP portal |
Within 30 days of investment/remittance |
| Form INVI |
When an investment vehicle issues units to a person resident outside India. |
Within 30 days from the date of issue of units to a person resident outside India. |
Conclusion:
This article is for informational purposes only and does not constitute professional advice or a legal opinion. The regulations are subject to change, and companies are strongly advised to consult their Authorised Dealer (AD) Bank or a legal expert before acting on any aspect discussed here.
To ensure full compliance and tailored guidance, you can reach out to our expert team at KDP Accountants by emailing at enquire@kdpaccountants.com.
The above note is subject to further study and clarification. This note does not form an opinion from our end and before taking any decision based on the above, it is recommended to consult our experts on the subject. Kamdar, Desai & Patel will not be liable for any damages (including, without limitation, damages for loss of business projects, or loss of profits) arising in contract, tort, or otherwise from the use of or inability to use this article or any of its contents, or from any action taken (or refrained from being taken) as a result of using this article or any such contents.
