Overview of Downstream Investment

Downstream Investment’ means that investment made by an Indian entity or an Investment Vehicle in the capital instruments or the capital, as the case may be, of another Indian entity.

In case an indian company receiving any foreign direct investment and if that FDI is used for the purpose of investing in the capital instrument in any other indian company, then that is called the indirect foreign investment and the Investor company has to make a reporting in Form DI for downstream investment.

Who is required to file Form DI for making reporting of Downstream Investment

The indian investor entity investing the foreign direct investment received in the capital instrument of any other indian entity shall be under an obligation to make a reporting in Form DI for reporting of downstream Investment.

Conditions for making Downstream Investment

The following conditions shall be fulfilled for making Downstream investment into the Indian entities:

• Approval of Board of Directors / shareholder agreement : The downstream investment made in the indian entity should have the approval of the Board of Directors as also a Shareholders' Agreement, if any;
• Remitted fund to be used for making downstream investment: The Company making downstream investment in the indian company shall invest only the funds received as remittance from abroad and shall not use any borrowed fund from the domestic market for making downstream investment in the investee company.
• Internal Accruals can be used for making downstream investment: Internal Accruals i.e. profits transferred to reserve account after payment of taxes can also be used for making the Downstream investments in the investee company.
  Further debt raised and its utilisation shall be in compliance with the Act, rules or regulations made thereunder.
• Transfer of capital instrument of investee company : The Capital instrument of the investee company may be transferred to the following:
  • A person resident in India subject to adherence to pricing guidelines.
  • A person resident outside India, subject to reporting requirements in Form FCTRS;
  • An Indian company which has received foreign investment and is not owned and not controlled by resident Indian citizens or owned or controlled by persons resident outside India.
• Reporting obligation: The onus of making reporting for downstream Investment is on the First level indian company making downstream investment.
  Further, in case the investee company makes any downstream investment and so forth, the onus of making reporting for downstream investment shall also remain on the first level india company.
• Certificate from Statutory Auditor: The first level india company shall obtain a statutory Auditor certificate to the effect that it has made the relevant compliances in relation to the downstream investment. And also, such compliance shall be mentioned in the director’s report and annual report of the company.

Further, any qualification in the auditor report of such company relating to the downstream investment shall be brought the notice of the Regional Office of the Reserve Bank in whose jurisdiction the Registered Office of the company is located and shall also obtain acknowledgement from the RO.

Documents required for Filing Form DI for reporting of Downstream Investment

The following documents shall be required for filing Form DI for reporting of Downstream Investment in india:

• Declaration by the Authorised Representative
• Pre and post Transaction shareholding pattern
• Board resolution
• Shareholder’s resolution, if any
• Reason for delay in submission, if any
• Valuation certificate.

Process for filing form DI for reporting of Downstream Investment

The following process shall be followed for reporting of Downstream Investment in india:

Step 1: Registration for Entity User on Firms Portal

The company has first of all needs to get the registration of Entity user on the FIRMS Portal in case the reporting of Downstream Investment is being made first time for the Company.

In case of subsequent reporting the company does not need to make any registration for entity user.

Documents to be attached : Authority letter in signed Format, PAN of Entity and PAN of Authorised Representative of the company.

After registering of entity user, the concerned authority will check and verify the details and documents filed and after being satisfied, a Password will be sent to the registered email ID which needs to be change.

Step 2: Creation of Entity Master

After registration of entity user, there needs to create an entity master by logging into the FIRMS Portal using the User ID and Password as created in the entity user process.

The Company needs to fill all the details as required in the entity master form in the FIRMS Portal and then click on “Submit”.

Step 3 Registration for Business User on Firms Portal

After creation of Entity Master, the company needs to apply for business user registration.

One important point to be noted is that, here in the business user form the company needs to select the IFSC Code of the AD Bank from the Drop Down. So, the company should confirm the IFSC Code to be chosen in the form in advance from the Concerned Bank.

Documents to be attached : Authority letter in signed Format, PAN of Entity and PAN of Authorised Representative of the company.

Step 4 Reporting of Downstream Investment

The Last step is to make the reporting of Downstream investment made in india. The company needs to fill all the required details and attach the relevant documents as mentioned above, while making reporting in this form and then submit the Form.

After filing all the details, the user needs to click on “Save and Submit Button” or the user can click on “Save as Draft” button to submit the form late.

After filing of Form DI, the AD Bank or both AD Bank and RBI as the case may be will check the form and in case any discrepancy is found in the Form, then they will reject the Form giving the appropriate reasoning or otherwise they will approve the Form.

In case the form got rejected, then the company need to file the Form again after removing all the discrepancies.

Time limit for filing Form DI for reporting of Downstream Investment

The indian entity making Downstream investment in another indian company, which falls under the purview of indirect foreign investment for the investee company shall make the Reporting in Form DI within a period of 30 days of such investment.

The time limit of reporting requirement shall remain as 30 days from the date of such investment, even if the capital instruments has not been allotted by the investee company

Applicable regulations

Downstream Investment under FEMA shall be regulated by Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017

Consequences of late filing of Form DI for reporting of Downstream Investment

If the Company makes reporting of Downstream investment after the period of 30 days of date of investment, then the Company shall be liable to late submission fees as decided by Reserve bank of india in consultation with Central Government.

How Rajput Jain and Associates can Assist

We offer all kinds of Consultancy and Compliances Services in relation to Downstream Investment in india. We have empanelled various experts to provide the expert advisory and Compliances services for Downstream Investment in india

The services that we offer includes the following:

• Reporting of Downstream Investment in Form DI
• Drafting of documents for reporting to RBI
• Valuation of shares
• Advising on matters relating to Downstream Investment
• ROC Compliances in relation to Downstream Investment
• Liaisoning with AD Bank and RBI in relation to compliances for Downstream Investment in india.