RBI INTRODUCED MANDATORY FDI REPORTING THROUGH SINGLE MASTER FORM (SMF)

Mauritius India's largest source of FDI: RBIIn a partial manner notification is applicable to the existing FDI. It is expected from the company that company provide all the details of existing FDI in the prescribed format and prescribed manner as available with this notification.

SMF gives the facility related to reporting of total foreign investment in an Indian entity and also provide facility related to investment in investment vehicle to the person outside India.

Before any implementation of this process, Reserve Bank of India will provide specific format from 28.06.2018 to 12.07.2018 to Indian entities for input the data of foreign investment.

Before the implementation of Single Master Form (SMF), RBI would provide an interface of specified format called Entity Master File (EMF) to Indian entities for input the data of total foreign investment. From 28.06.2018 to 12.07.2018 RBI will made available this interface of EMF in their website.

The Indian entities who will not qualify the pre-requisite requirement will not able to receive any foreign investment in India and those Indian entities will be considered as non-compliant of Foreign Exchange Management Act (FEMA), 1999 and regulations.

WHAT IS SMF:-

  • RBI will introduced a SMF for fulfill the objective of integration of various reporting structure of foreign investment in India. The SMF is required to be filed online and also provide a facility to Indian entity for reporting total foreign investment. Single Master File is a substitute of individual reporting currently done through “Form FC-GPR, FC-TRS, LLP-I, LLP-II, ESOP, CN&DRR”. However the requirement of submitting the annual statement of “foreign liabilities and assets” to RBI is continue same 15 July every year.
  • The Single Master Form will be integrated reporting forms which will event-based form helping the person residing outside India in reporting the total foreign investment.
  • Entity Master Data (EMD) Annex-I : It is required to all Indian entities to provide all the details of foreign investment received by them till the current date called as Entity Master Data and the format of is given in Annex-I of said notification.
  • SMF will also provide the facility of reporting of total foreign investment in an Indian entity via company, LLP & other investment vehicles(REITs)/Infrastructure Investment Trusts(Invlts)/Alternative Investment Funds(AIFs).
  • SMF is the substitute of existing forms such as:
    • For issue & transfer of shares – FC-GPR & FC-TRS.
    • For foreign direct investment & foreign disinvestment/transfer of capital contribution in LLP – FORM LLP-I & II.
    • For issue of employee stock option plan – FORM ESOP
    • For issue or transfer of convertible notes – FORM CN
    • For issue or transfer of depository receipts – FORM DR
    • Single Master Form will also compulsory in following:-
    • Reporting the Downstream Investment (Indirect Foreign Investment) in a company or LLP via FORM DI.
    • vehicle (including REITs, Invlts &AIFs) via FORM InVi

SUBSEQUENT INVESTMENTS IN ANNEX-2:-

For any subsequent foreign investments, an integrated reporting structure of various types of foreign investment introduced which will be called SMF. The format of SMF is given in Annex 2 of said notification. While the format of the form has been provided as Annex 2 to the circular, RBI is yet to notify the form. Once notified, the form will be available in the master direction on reporting as well as on the website for the entities to file it as and when required.

CONSEQUENCES OF NON-COMPLAINT BY INDIAN COMPANIES CANNOT RECEIVE FDI

The Indian entities who will not qualify the pre-requisite requirement will not able to receive any foreign investment in India and those Indian entities will be considered as non-compliant in Foreign Exchange Management Act (FEMA), 1999 and regulations. FEMA requires observation of its provisions in letter and spirit and if any contravention may land in penalties on the erring company and individuals. There are some conditions and stipulations in case of FDI, ODI, investment by individuals in foreign shares, purchase of assets in foreign countries, extending guarantees, availing ECBs, supplier’s credit.

WHAT IS ENTITY MASTER DATA:-

ENTITY INCLUDES

  • Company registered u/s 1(4) of the companies act, 2013.
  • LLP registered under limited liability partnership act, 2008.
  • Startup companies which complies all the condition listed in Notification No. G.S.R 180(E) dated February 17, 2016 issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

For filing registration form valid entity user is required by every entity. So now question arise

WHO IS VALID ENTITY USER

Entity user is that person who is authorized by entity for register an entity in entity master of firm application. An entity user is the only person who can update the detail of foreign investment of an entity. Every company have only one entity user and if entity want to change the entity user then entity have to contact to the RBI helpdesk. A person can be entity user of more than one entity but entity user requires separate registration for every entity.

STEPS FOR REGISTERING A PERSON AS AN ENTITY USER

  1. Entity issue an authority letter in the format given by RBI in annexure to that person who is authorize for registering as an entity user. Entity user keep all the foreign investments details ready.
  2. URL https://firms.rbi.org.in is open to access the login page.
  3. Click on registration form for registering new entity user.
  4. Fill all the details of registration form then click the submit button.
  5. After that a message “Record Saved Successfully” is received.
  6. Authority Letter submitted by the entity user will be verified by RBI and after RBI’s approval, the user will receive the password on their registered email ID from RBI.
  7. Entity Master
  8. Enter your user name and new password. On successful login the home page (dashboard) is displayed.
  9. Click on the top – left option button to open Menu. Click on the Master Setup under Menu. Then click Entity Master.
  10. Then fill entity details by following steps
  11. Click ADD button.
  12. Click Entity Details tab
  13. Click Particulars Tab
  14. Click Foreign Investment in Company / LLP Tab and enter all the details of foreign investment received by the entity from the date of incorporation.
  15. After adding of all the details of foreign investment click the declaration check after checking declaration entity user can submit the details.

The entity should also require reporting indirect foreign investment received by the entity. The entity shall provide the details of all foreign investment received till the current date. This will also be inclusive of all foreign investment, irrespective of the fact that the regulatory reporting to RBI for the same has been made or not or whether the same has been acknowledged or not. In case if entity has received foreign investment and is willing to make the filing in the SMF, being made available from August 01, 2018, the same shall not be included in the foreign investment details.

FOR COMPANY

Total Paid-up capital of company on fully diluted shares.

Fully diluted shares mean the total number of shares that would be outstanding if all possible sources of conversion are exercised. It includes:

  • Equity shares
  • CCDS/ CCPS: Equivalent Equity shares (maximum)
  • Share warrants: Equivalent Equity shares considering 100% exercise upfront
  • ESOPs: Equivalent Equity shares considering 100% exercise upfront

FOR LLP – Total capital contribution in LLP.

Points to be kept in mind for working on Entity Master:-

  1. All details must be provided in one time.
  2. When all the mandatory fields have been filled then only submit button is enabled.
  3. The reset button can reset the complete form.
  4. Once the details have been submitted the Entity user can modify the details.

RJA comments

The integration of the extant reporting structures is a positive move made by RBI to simplify and rationalize reporting for foreign investment in India. This crucial amendment is in line with the SEBI circular which was issued for the listed companies for monitoring FDI limits.

There may be certain practical difficulties before implementation of the new form for the Indian entities to collate details on foreign investment, especially as the window for uploading such data on the RBI interface is open for only 15 days. Now severe consequences attached to non-filing, Indian entities having foreign investment must prepare to submit the information timely. 

For any query you can write to info@carajput.com. Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 09811322785/4 9555 5555 480)

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COMPOUNDING OF OFFENCES UNDER FEMA, 1999 – CHECKLIST & PROCEDURE

COMPOUNDING OF OFFENCES UNDER FEMA, 1999 – CHECKLIST & PROCEDURE

Untitled3The compounding of contraventions under Foreign Exchange Management Act (FEMA), 1999 is a voluntary process by which an applicant can seek compounding of an admitted contravention of any provision of FEMA, 1999 under Section 13(1) of the FEMA, 1999

For compounding of offences Foreign Exchange (Compounding Proceedings) Rules, 2000 have been framed and published by the Government of India empowering the Reserve Bank to compound contraventions under FEMA, 1999. The provisions of Section 15 of FEMA, 1999 permit compounding of contraventions and empower the Compounding Authority to compound any contravention as defined under Section 13 of the Act on an application made by the person committing such contravention either before or after the institution of adjudication proceedings.

The Government of India has, in consultation with the Reserve Bank placed the responsibility of administering compounding of contraventions with the Reserve Bank, except contraventions under Section 3(a) of FEMA, 1999. Accordingly, the procedure for compounding of contraventions under FEMA, 1999 has been framed with a view to provide comfort to the citizens and corporate community by minimizing transaction costs, while taking severe view of willful, malafide and fraudulent transactions.

CONSEQUENCES OF NON-COMPLIANCE OF FEMA PROVISIONS : Non compliance of FEMA provisions and rules and regulations made there under would attract the penal consequences.

As per section 13(1), Chapter IV of FEMA, 1999, If any person contravenes any provision of FEMA, 1999, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where the amount is quantifiable or up to Rupees Two lakh, where the amount is not quantifiable and where the contravention is a continuing one, further penalty which may extend to Rupees Five thousand for every day after the first day during which the contravention continues.

The provision for penalty has been provided under Section 13(1) of FEMA, 1999 which is reiterated below:

“If any person contravenes any provision of FEMA, 1999, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where the amount is quantifiable or up to Rupees two lakh, where the amount is not quantifiable and where the contravention is a continuing one, further penalty which may extend to Rupees five thousand for every day after the first day during which the contravention continues”.

Further section 13 (2) of FEMA, 1999 provides for the following: “Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf”

REMEDY FOR NON-COMPLIANCE/ COMPOUNDING : The contraventions of any provision of Foreign Exchange Management Act (FEMA), 1999 under Section 13 of FEMA, 1999 can be compounded under Section 15 of the FEMA, 1999 and in the manner as provided in Foreign Exchange (Compounding Proceedings) Rules, 2000 and Master Circular on Compounding of Contraventions under FEMA, 1999 issued by the RBI from time to time. The compounding of contraventions under Foreign Exchange Management Act (FEMA), 1999 is a voluntary process by which an applicant can seek compounding of an admitted contravention of any provision of FEMA, 1999.

COMPOUNDING PROCESS UNDER FEMA

(i)  Obtaining requisite approvals and compliances : At the outset, all requisite approvals should be obtained and all compliances should be made before seeking compounding of contravention under FEMA, 1999. Compounding can be done only after rectifying the records by way of obtaining post-facto approvals or unwinding the transactions in cases where such transactions are not permissible under FEMA, 1999.

(ii)  Filing of application along with requisite documents : A duly completed application, in duplicate, for compounding of a contravention under FEMA, 1999 may be submitted to the Compounding Authority (CA) on being advised of a contravention under FEMA, 1999, either through a memorandum or suo moto on being made or on becoming aware of the contravention. The format “Form” of the application is appended to the Foreign Exchange (Compounding Proceedings) Rules, 2000 (Annexure-I) along with a demand draft of Rs.5000/-  towards application fee in favour of “Reserve Bank of India” and payable at the centre where the application shall be processed/was processed and the compounding order was issued. Further the applicant must indicate the following information about the authorized person of the entity who would be handling the complete process of the compounding:

  1. Name and Designation of the authorized
  2. person for the contravener
  • Telephone/Fax/Email of the authorized person

(iii)  Submission of application: The application may be submitted may be submitted to the Chief General Manager, CEFA, Reserve Bank of India, 5th floor, Amar Building, Sir P.M. Road, Mumbai 400 001 or can be sent to the Compounding Authority, [Cell for Effective implementation of FEMA (CEFA)], Foreign Exchange Department, 3rd floor, Amar Building, Sir P.M. Road, Fort, Mumbai- 400001 or as advised in the memorandum issued by the office of the Reserve Bank.

(iv)  Examination of the application : The Reserve Bank makes a scrutiny of the application and will examine and decide if the contravention is technical, material or sensitive in nature. If technical, the applicant will be issued a cautionary advice. If the contravention is material, it will be compounded by imposing a penalty after giving an opportunity to the contravener to appear before the compounding authority for a personal hearing. If the contravention is sensitive in nature requiring further investigations, the same would be referred to the Directorate of Enforcement (DoE) for further investigation/ action.

After getting the hearing notice, the contravener or any authorized person on his behalf may appear before the compounding authority to make his submissions. However it is not mandatory to attend the personal hearing.  In case of any difficulty, the applicant may give in writing to the Compounding Authority, his consent to proceed with the disposal of the application based on the documents submitted with the application expressing his inability to appear in person.

(v) Compounding Order : The Compounding Authority may pass an order indicating details of the contravention and the provisions of FEMA, 1999 that have been contravened. The sum payable for compounding the contravention is indicated in the compounding order. The contravention is compounded by payment of the penalty imposed.

(vi) Post-compounding Procedure : The amount should be paid within 15 days from the date of the order by way of a demand draft drawn on “Reserve Bank of India” and payable at Mumbai.

(vii) Compounding Certificate : On realization of the sum for which contravention is compounded, a certificate shall be issued by the Reserve Bank indicating that the applicant has complied with the order passed by the Compounding Authority. In case of non-payment of the amount indicated in the compounding order within 15 days of the order, it will be treated as if the applicant has not made any compounding application to the Reserve Bank and the other provisions of FEMA, 1999 regarding contraventions will apply. Such cases will be referred to the Directorate of Enforcement for necessary action.

Once a contravention has been compounded, no proceeding or further proceeding, as the case may be, can be initiated or continued, as the case may be, against the person committing such contravention under that section, in respect of the contravention compounded. As compounding is based on voluntary admissions and disclosures, there cannot be an appeal against the order of the Compounding Authority.

(viii)  Time Frame : The compounding process is normally completed within 180 days from the date of receipt of the application complete in all aspects, by the Reserve Bank.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 9555555480

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