Inward Remittance and Related Compliances w.r.t. Shares Subscribed by Non-Residents at the Time of Company Incorporation
18 August 2014 • CS Samrish Bhanja
ADDITIONAL STEPS IN CASE SHARES ARE BEING SUBSCRIBED BY A NON-RESIDENT PROMOTER / INVESTOR
This Article was earlier part of Post Incorporation Compliances. We have now split the same into two parts. This is the second part covering Subscription of Shares by NR post Company Incorporation. Through this blog, we have tried to cover the post incorporation procedure and compliances under Foreign Exchange Management Act (FEMA) in case of non-resident investment.
In case of non-resident investors, the following procedure is involved w.r.t. foreign remittance of subscription amount.
As per reporting of FDI norms, chronology of event should be:
- Receipt of Foreign money.
- Reporting of receipt of amount of consideration to RBI for issue of shares through an AD Category – I bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report on the non-resident investor from the overseas bank remitting the amount.
- UIN (Unique identification Number) shall be allotted by RBI.
- The equity instruments should be issued within 180 days from the date of receipt of the inward remittance. In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) account, as the case may be
- However, please note that the above FDI norms pertaining to 180 days is redundant for all practical purpose for the fact that the Companies Act, 2013 requires the shares to be allotted within 60 days from the date of inward remittance.
- After issue of shares you have to file Form FCGPR, not later than 30 days from the date of issue of shares. UIN is to be mentioned in the form FCGPR.
Confusion in compliance with FDI norms
It is practically impossible to comply with the FDI norms in case of subscription of shares of a newly incorporated Company by a Non-Resident. The reason being, a Non-Resident will remit money towards shares subscribed only after the Company has opened Current Account while the date of allotment of shares is deemed to be the Date of Incorporation of the Company. That means shares are being issued without having received the Inward Remittance while the 1st step in case of FDI compliance is receipt of Inward Remittance (please see point 1 of FDI Norms above).
Therefore there are two types of practice prevalent in India for complying with the requirement of FDI Norms, which are being elaborated below. Of course, needless to say that none of the practice is foolproof and has its own merits and demerits.
- Company Incorporation
- PAN and Bank Account opened
- Inward Remittance received into the Current Account opened
- Reporting of Inward Remittance to RBI through AD Bank within 30 days of Inward Remittance
- UIN allotted by RBI
- Board Meeting held to take note of Inward Remittance and for issue of Share Certificates.
- Share Certificates issued with date of Incorporation as the date of Issue of Shares.
- FCGPR filed immediately thereafter but not later than 30 days from the date of Board Meeting. Here, the date of Incorporation is mentioned as date of Issue of Shares and therefore, it is put in the records that there has been a delay in filing of FCGPR.
Form FCGPR can be accompanied with a forwarding letter to RBI that since the shares are issued to Non-resident for subscribing to the Memorandum and Articles of Association, there has been delay in filing of FCGPR.
Note: Here, in this case there is clear communication of facts, albeit, there has been violation of FDI Norms. It has been observed that RBI do not question the above non-compliance unless there has been inordinate delay in receiving Inward Remittances and related compliances thereafter .
- Company Incorporation
- PAN and Bank Account opened
- Inward Remittance received into the Current Account opened
- Reporting of Inward Remittance to RBI through AD Bank within 30 days of Inward Remittance
- UIN allotted by RBI
- Board Meeting held for issue of Shares (here, this Board Meeting date is taken as date of Issue of Shares and not the actual issue of Shares i.e. date of Incorporation).
- Share Certificates issued with date of Board Meeting as the date of Issue of Shares.
- FCGPR filed within 30 days of issue of shares with date of the Board Meeting mentioned as date of Issue of Shares.
Note: It is needless to say that the date of Board Meeting being taken as date of Issue of Shares w.r.t shares subscribed at the time of incorporation is contrary to the provisions of Company Law and therefore, to that extent, it is misstatement of facts.
For more information on subscriber sheet of MOA & AOA, kindly visit link Rules relating to subscription of Memorandum and Articles of Association at the time of Company Incorporation.
A private Limited company incorporated in India in 2015 with two share holders.
Foreign Company held 9999 shares at Rs. 10 each
Individual Held 1 shares (as nominee) at Rs. 10 each
but total amount of consideration is received 99,950 out of 1,00,000 (Rs. 50 is not received)
Please suggest me how we adjust Rs. 50 and in FCGPR form total share required to mentioned is 9999 or 10000 shares ?
Foreign Holding Company, holding 99.99% equity , Subscribes to Right Offer of Indian Company. Due to Exchange Fluctuation, Excess amount of Rs.2000 received over Rs. 1 Crore Share allotment amount including share premium. Can the Indian Company Write back this amount in the books with the consent of the Share Subscriber. Is there any issues that may be faced under Companies Act 2013 and under FEMA regulations. Does the Excess amount of Rs. 2000 strictly required to be Refunded under Companies Act and under FEMA regulations
Pursuant to the RBI Guidelines, if the capital instruments are not issued by the Indian company within sixty days from the date of receipt of the consideration, the amount so received has to be refunded to the person concerned by outward remittance through banking channels or by credit to his NRE/ FCNR(B) accounts, as the case may be, within fifteen days from the date of completion of sixty days.
However, on the basis of our practical experience, if excess foreign remittance is received due to fluctuation in foreign exchange rate, the company is required to refund that amount or provide a clarification/explanation about the treatment of excess money received while filing of the form FC-GPR.
With 1 lacs Paid Capital 100% subsidiary of a foreign company formed, till date only salary and rent re imbursement by forign company , no FEMA compliance done.
As per Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, an Indian company issuing equity instruments to person resident outside India shall report such issue in Form FC-GPR, with the RBI within 30days from date of issue of equity instruments. Therefore, your company is required to file the said form once subscription money is received in its bank account. For more details, you can refer our blog on Is there a timeline for bringing in subscription money under FEMA? (https://bsamrishindia.com/is-there-a-timeline-for-bringing-in-subscription-money-under-fema/)
While filing the FCGPR in FIRMS, how to deal with if there is difference in amount of inflow and amount of capital instrument issued. For eg. 10 equity shares offered at INR 10 each which comes to INR 100. But at the time of receipt of payment Company received INR 102 due to variation in foreign exchange rates. How to deal with this difference in amount of inflow and amount of capital instruments issued in FIRMS.
If excess foreign remittance is received due to fluctuation in foreign exchange rate, the Companies are required to provide a clarification about the treatment of excess money while filing Form FC-GPR. However, in cases where substantial amount is received in excess, the Companies are required to return such excess amount in accordance with the RBI guidelines.
It is pertinent to note that no threshold has been prescribed by the RBI beyond which the excess amount shall qualify as substantially high. Therefore, we suggest you to take up this matter with your AD Bank and act accordingly.
Actually i have a query that if there is subsidiary company incorporated having two shareholders in which one is foreign holding company for subscription of 99,900 rupees and another is also foreign shareholder for subscription of 100 rupees and that foreign shareholder is facing difficulty in transfering that only rupees 100 as charges are more than rupees 100 in transferring the same so is it necessary to file fc gpr for that rupees 100, can we show it brings in cash, is it possible to do so that only we file fc gpr for foreign holding company and not for foreign shareholder holding rupees 100 only by showing it as brings in cash, in future filing of FLA will it get conflicted or not? Please reply along with RBI norms.
Dear Sir/ Madam,
Please note that pursuant to the provisions of Part A(1) of Schedule 1 of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, a person resident outside India(PROI) shall bring the amount of consideration for subscription of shares in an Indian Company via inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
Thus, a PROI is not permitted to bring in cash for subscription of shares.
We have plans to setup Foreign subsidiary company in India.
One of our share holder is a citizen of Dominica.
Query : He don’t have bank account in dominica so we planned to wire money from his another personal bank account at UK or Singapore.
As per FEMA guidelines can we bring funds from same registered share holder bank account in another country ?
Per the FEMA guidelines, the inward remittance should come from the subscriber of the shares. However, there is a leverage under RBI Notification No. RBI/FED/2015-16/13 which permits remittance of funds by a person other than the subscriber provided that additional documents are submitted. Thus,there is no restriction under FEMA guidelines for receipt of remittance from a bank account in a country other than the country of residence of the subscriber.
Can you please me which regulation of rbi allows inward remittance by a person other than beneficiary…
Please reply as soon as possible…
Waiting for your response…
RBI Notification No. RBI/FED/2015-16/13 permits remittance of funds by person other than beneficiary. As per the notification, following additional documents shall be attached while filing of Form FC-GPR in case if remitter and investor is different:
(a) KYC of both the remitter and the beneficial owner.
(b) A no-objection certificate (NOC) from the remitter for issuing capital instruments to the beneficial owner mentioning their relationship.
(c) A letter from the beneficial owner explaining the reason for the remitter making remittance on its behalf.
(d) A copy of agreement / board resolution from the investee company for issuing capital instruments to a person other than from who the remittance has been received.
KYC of both the remitter and the beneficial owner is mandatory but we are not able to get kyc of Beneficial owner, we have kyc of remitter. Can you just help out from where we can able to get KYC of beneficial. The fund is received in ICICI Bank
As per the FEMA Regulations, the KYC (of the remitter as well as of the beneficial owner for filing of Form FC-GPR) is issued by the receiver (Indian) bank based on the SWIFT message (MT199) shared by the remitter bank, which contains the KYC details (name, address, account no. etc.) of such remitter/beneficial owner.
Per our past experience in similar cases, we suggest you the following:
1) You can approach the remitter bank requesting them to share the SWIFT message (MT199) with ICICI Bank for issuance of KYC with the correct name and details of the beneficial owner. Conversely, you can also request the ICICI Bank to remit the MT199 message to the remitter bank outlining the requirements/ details required for issuance of KYC. The Malaysian Bank can then revert back to such MT199 message with the required details.
2) Alternatively, you may request the remitter Bank to issue the 6-pointer KYC (in the specified format) declaration on its letterhead, signed and stamped, and you can request the ICICI Bank to issue the KYC of the beneficial owner based on such document.
3) Lastly, you can also request the remitter bank to issue a letter stating the period of relationship and bank details (including address) of the beneficial owner, and share the same with the ICICI bank for issuance of KYC.
However, before you go ahead with either of the above, please ensure to get the same confirmed from both the banks. Sometimes, based on Indian bank’s suggestion, the BO remits a very nominal amount from it’s overseas bank just to enable the process leading to issuance of KYC.
can you please let me know the draft board resolution for receiving inward remittance from a person other than the person to whom shares are actual alloted.
please reply as soon as possible
It is not the right platform to share the drafts. However, the Company can pass a resolution on below lines:
“the Board hereby take on record the inward remittance received from (“the remitter”) against equity shares subscribed in Memorandum of Association by (“the subscribers”).
A private limited company with two shareholders, one Indian entity and one foreign entity holding 50% equity shares each, is proposing to further issue equity shares on right basis.
In this regard kindly advice do we need to file both ARF and FC-GPR w.r.t the Foreign entity or filing of only FC-GPR is sufficient?
RBI vide Circular No. 30 dated 7th June 2018 had introduced a new system to integrate reporting of foreign investment through a single form as a part of ‘Ease of doing Business’ initiative and a new filing platform FIRMS came into place by replacing eBiz platform. The requirement of seperate filing of ARF has been done away. The Companies are now required to file a single master form (SMF) to report foreign direct investment.
You can read our blog (https://bsamrishindia.com/single-master-form-smf-and-the-new-filing-platform-firms/) to know more about the SMF filing.
We intend to strike off one of our group Company. Its a private company, there has not been any business and operations since its incorporation.
As on date the Company has three shareholders, two individual and one foreign entity. The individuals are holding 34.42% of shares each and the foreign entity is holding 31.16% of shares.
In this case how will we transfer the money after writing off the liabilities to the foreign entity shareholder?
Our company had issued shares to non resident back 8-10 years. Foreign remittance received 8-10 years back. Now we want to file FCGPR regarding that foreign remittance. Will you please guide me about the compounding or LSF?
What are all the modes are available for allotment of Shares to NR if investment is through remittances and no business transaction ?
Even after investment NR investor will hold less than majority rights of shareholders, can the majority holders take any decision against NR, is it valid against an agreement ?
Your question is not clear.
We have received excess fund of 56k in remittances on Aug 30 2018 which is not refunded to foreign shareholder yet.
can we adjust it against repayment of personal expenses paid by company for non resident shareholder cum director?
Pursuant to Para 2 of Schedule 1 of Notification No. FEMA 20(R)/ 2017-RB, the excess amount received shall be refunded to the non-resident investor if no shares are issued against such amount within a period of 15 days.
The amount received against subscription can only be utilized for two purposes either for allotment or for refunding the amount to the investor.
In your case, it is advisable to refund the amount to foreign shareholder and as 15 days had already elapsed, the Company shall refund the amount with an interest of 12% p.a. with a prior approval of Reserve Bank.
Can you pls revert on the below case..
a) company incorporated in 25 May 18 with single foreign investor with 99% holding of say Inr 4.99lc
b) foreign remittance recd in current account on 31/08/18. (He transferred excess amount of approx 50k)
c) firc given by bank on 23rd Sep 18
Yet Fc gpr could not be filed due to non availability of director in india first and then change of consultant.
a) what will be the date of allotment? Incorporation date or we can take any later date?
b) if we file fc gpr then whats the best reason we can furnish for delay in reorting ?
c) How much LSF rbi usually levy on these defaults if we file it in March considering the Inward remittance is for 4.99lc rupee only.
d) how the excess receipt of 50k to be treated? Can we take it as personal expense repayment to company by director.
Your revert shall be highly appreciated.
Thanks in advance
a) As per the provisions of Companies Act, in case of incorporation, the date of incorporation is deemed to be the date of allotment. Therfore, date of allotment shall be 25th May, 2018.
b) We would suggest you to state actual reasons due to which FC-GPR could not be filed. c) The amount of LSF levied by RBI, depends on the amount involved in reporting of FC-GPR. You can refer our blog Delays in Reporting FDI: Late Submission Fees (LSF) (https://bsamrishindia.com/delays-in-reporting-fdi-late-submission-fees-lsf/) to get more detail on the same. d) As per Para 2 of Schedule 1 of Notification No. FEMA 20(R)/ 2017-RB, the excess amount received shall be refunded to the concerned person if no shares are issued against such amount within a period of 15 days. Hence, the Company is under obligation to refund the amount.
newly incorporated company authorized capital is just 100000 and received fund of 1500000 now SH7 is taking too much time for approval , pending increase in authorized capital , is there any way to use this fund ?
Regret late revert. Excess share application money can be utilized only for allotment or for repayment. Therefore, you cannot use it for any other purpose. Moreover, allotment with respect to the excess money received should be done within 60 days of receipt of application money.
1.Should funds brought in by an OCI director towards subscription to MOA throught his NRE account be treated as FDI and reporting be made in FIRMS?
2.what is business user and entity user in FIRMS? should a company have both?
3.Out of the above two practices given by you,which is a better option?
4.How many days delay is seen as inordinate delay?
1. Investment made by an OCI in the shares of Indian company on Non-repatriation basis are treated as Domestic Investment. However investment made on Repatriation will be treated as FDI and should be reported with RBI.
2. Yes, a Company shall require both Entity User (EMF) and Business User (SMF). Entity User is a registration for a company to register itself on Firms portal for making the FDI reporting. Once Entity User is created, the company shall require a business user (authorized person) to who shall make the reporting on company’s behalf.
3. Could not understand the question
4. The reporting of remittance must be made within 30 days from the date of allotment of shares. Any delay after that shall be subjected to Late submission fees (LSF) by RBI.
if 1 foreigner has subscribed 1 share of rs. 10 only
for such subscription also Company has to received fund from him and report to RBI
As per the facts of the case cited by you, it is assumed that the Company is a wholly owned subsidiary of a foreign Company and the foreigner is a nominee of that holding Company. Therefore, the whole amount can be remitted by the foreign holding Company.
And you would be required to report to RBI about the shares allotted to such foreign holding Company against that remittance within the specified timelines.
Sir, a Pvt Ltd co., is Incorporated on 30-7-18 with 1 OCI shareholder and 1 Indian shareholder
First board meeting will be held on 11-8-18 and bank a/c will be opened by 15-8-18. By when ARR & FCGPR should be filled.
Also can foreign shareholder transfer his contribution of share capital from his NRE a/c.If yes is it on repatriation basis.
ARF is required to be filed within 30 days of the remittance received; and
FC-GPR is required to be filed within 30 days of incorporation.
Also, a foreign shareholder can transfer the funds from its NRE account on repatriation basis.
company got remittance on non repatriation basis.But we filed Advance Remittance Form through EBIZ.Now we have to cancel that ARF.Can you please provide letter format for cancellation of ARF.We filed in October month still we didnt get allotted UIN.
You are advised to visit the RBI Regional Office. Also, as the investment does not attract any FDI regulations, you can always write to RBI that the remittance was on non-repatriation basis and the ARF filed may not be taken on record.
We have received amount in 2 trenches and through two different AD Banks. The allotment was made in one date. Now we have file FCGPR, in FCGPR we have mentioned details of AD Bank. How we have file FCGPR.
In case, the remittance receiving AD Category – I bank (AD bank) is different from the AD bank through which FCGPR is filed, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the investee to the AD bank carrying out the transaction along with the Form FC-GPR
Our company received FDI in 2010 through ABC bank and ABC bank has remitted the amount to our AD Bank and issued FIRC and asked the AD bank to comply with the RBI Guidelines. But the AD Bank did not comply with the guidelines and UIN was not alloted, hence FC-GPR forms are also not filed by the company. Now the company wants UIN no. and AD bank is not complying, what is the next course of action?
In accordance to the FDI Scheme as specified in para 9 (I) (A) of Schedule I to Notification No. FEMA 20/2000-RB, you are required to file an Advance remittance form (ARF) to the RBI using the e-biz portal (https://services.ebiz.gov.in/app/login) and only then the AD bank can provide you the UIN. The bank may ask for additional information, if required.
what are the provisions in relation to the non receipt of Inward Remittances by foreign shareholder within a reasonable time….under fema1999
As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 Capital instruments shall be issued to the person resident outside India making such investment within 60 days from the date of receipt of the consideration.
In the given instance ,where foreign shareholder has not remitted funds then company is not bound to allot shares to the shareholders and as far as concerned, there is no such provisions under FEMA regulating non-receipt of inward remittance within reasonable time.
Moreover, post incorporation of the company, subscribers are to pay funds for subscribing shares but neither in provisions of FEMA,1999 nor in Companies Act,2013, any time limit is specified for receipt of such funds in the bank account of the company.
Actually we have incorporated company on 11.07.2017 and we have received subscription money from foreign subscriber on 20.09.2017 and from Indian company on 27.09.2017. As company act says that Share certificate must be issued within 2 months from the date of incorporation, but we have received money after the expiry of 2 months so how could we issue share certificate within 2 months??
2. What is the date of Issue of shares? If it is 11.07.2017 in that case we have not filed FC-GPR within 30 days.
3. Is CA certificate required in this case?
Issue of Share Certificate: In accordance to Section 56(4) of Companies Act 2013 “A company shall issue share certificate within a period of two months from the date of incorporation, in the case of subscribers to the memorandum”. Therefore we can conclude that a share certificate is required to be issued within 2 months of date of incorporation. It does not matter if the subscription money has not been received by the company. Please read section 10(2), amount payable towards shares subscribed is a debt due from the subscriber.
Filing of FC-GPR: Subscribers of MOA are deemed shareholders of the company. As soon as they subscribe the MOA & file it with ROC along with other incorporation documents they become the members as well as shareholders of the company. Hence, the date of allotment of shares shall be 11.07.2017. Obviously, timelines prescribed for filing of FC-GPR within 30 days of allotment can’t be met. Need not worry, a simple explanation in the forwarding / covering letter will suffice. Only care be taken is there should not be inordinate delays.
CA Certificate: In terms of sub-regulation (1) of Regulation 5 of the Notification ibid, a person resident outside India or an entity incorporated outside India may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to compliance with the issue price specified in para 5 of Schedule 1 of the Notification ibid. It has been decided that in cases, where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956 (Now Companies Act 2013), by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme. As CA certificate is required for filling of a FC-GPR form, it is a mandatory attachment you may attach a letter describing this as a case of subscription of shares at the time of incorporation and therefore, being done at face value.
Thanks for your reply.
a private limited company received money from NRI from his NRE account in indian rupees for allotment of shares. Now the company required to file ARF with RBI?. What is the reporting procedure for allotment in this case.
Apologies for the delayed response. Please find below the reply to your query:
As per Notification No FEMA.361/2016-RB dated 15th Feb 2016 advance reporting is required to be made with RBI for an investment is on repatriation basis.
Such receipt shall be reported in form ARF to the Regional Office concerned of the Reserve Bank, not later than 30 days from the date of receipt.
Allocation of Shares against the investment should be completed within 60 days of receipt of amount of consideration.
The company should file the FC-GPR form within 30 days of allotment of capital instruments.
However, if the investment has been made by the NRI on non-repatriation basis, it is taken as domestic investment. And therefore, there would not be any requirement to report.
A company has received money is two tranches i.e. 1st call money and final call money. we have filed form FCGPR for funds received from 1st call.. now we have received final call money. what amount should we mention in FCGPR form – in point 5 “Total investment received in company as on date?’.. both 1st and final call money received or
Final call money received
or amount received from that particular investor for whom we are filing form FGGPR?
Apologies for the delayed response. Please find below the reply to your queries:
As far as we are concerned point 5 is “post issue pattern of shareholding ” which means shareholding pattern of the investors as on date after allotment of shares for which the FC-GPR form is to be filed. Hence in this case it should be total number of shares and total amount received as on date ,from that particular investor for whom form is to file.
Further please note that rationale of FC-GPR form is to report RBI for number shares issued , it is nowhere concerned reporting after receipt of funds on call money.
A private Limited company incorporated in India in 2016 with two share holders (one of them is foreign share holder) and both of them are the Directors of the company.
Now that foreign director shareholder came to India on visit and brought foreign currency with him.Now the company proposes to issue shares to Foreign share holder by accepting foreign currency from foreign share holder.
Sir, would you please explain ,whether the above proposal is acceptable under FEMA and Companies Act.
Thanks & Regards,
As per FEMA an Indian company issuing shares under FDI scheme can accept foreign currency through :-
1. normal banking channels; or
2. debit to NRE / FCNR account/ non-interest bearing Escrow account;
3. Conversion of royalty/ lump sum/ technical know-how fee due for payment or Conversion of ECB;
4. Conversion of import payables / pre incorporation expenses/ share swap with approval of FIPB.
Any person residing outside India cannot subscribe the shares other than the above mentioned banking channels. Moreover, to invest in a business one should have a business visa, he cannot invest while holding a tourist visa.
Dear Sir, as you mentioned share can be issued on – Conversion of import payables / pre incorporation expenses/ share swap with approval of FIPB.
Is that possible as on today?
FIPB has been abolished in the year 2017-18. As per FDI Guidelines, equity shares can be issued against any other funds payable by Investee company provided such remittances do not attract any prior approval from Government or RBI and has been brought considering the sectoral cap, pricing and other FDI guidelines.
An inward remittance is received for application of shares but the amount is expended and now the amount is to be refunded from personal sources so what is the process for inward and outward remittance compliances and since inward remittance 180 days is yet to be passed.
Thanks in advance
Foreign Direct Investments (FDI) – Issue of shares under FDI and refund of advance remittances RBI/2007-08/213 A. P. (DIR Series) Circular No.20. states that-
In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) account, as the case may be.
In all cases where, as on November 28, 2007, 180 days have elapsed since receipt of funds and the equity instruments have not been issued, the companies are required to approach the Foreign Exchange Department of the Regional Office concerned of the Reserve Bank through their AD Category – I bank with a definite action plan either for allotment of equity instruments or for refund of the advance, with full details, for specific approval.
It is to be noted that such a refund must come from defaulting company and not from personal account, since it is the responsibility of company to make such a refund.
Can shares be alloted before filing of ARF
Yes, shares can be allotted before filing of ARF. Time frame of reporting ARF- 30 days from receipt of funds, FC-GPR- 30 days from issue of shares
if private company received the money from indian account ( in INR) of NRI.
is it cover under fdi ?
what are the required compliances ?
Yes, receiving money from NRI will be covered under FDI if the money is received on repatriation basis whereas if the money is received on non repatriation the same is not covered under FDI.
Required compliances for FDI are as follows:
1. File form ARF within 30 days of receiving funds.
2. After that, file FC-GPR within 30 days from the date of allotment of shares / convertible securities.
3. File FLA return, by 15th July of every year.
What are the compliances and provisions applicable in case of loan by a foreign holding company to an Indian wholly owned subsidiary
Compliances under Companies Act 2013:
A resolution u/s 179(3) (d) needs to be passed in a Board meeting to exercise borrowing powers of the Board. There are no other compliances under Companies Act 2013 as Section188 talks about specified contracts & arrangements w.r.t Related Party Transactions. But this loan is not falling under those specified contracts. Section 186 talks about loan and investment by the company but in this case Company is receiving loan not making loan. Section 185 relates to loan to Directors by the Company and therefore, not applicable here.
Compliances under FEMA 1999:
As far as compliances in connection with Loan by Foreign Holding to Indian Subsidiary is concerned, Indian companies are allowed to access funds from abroad through External Commercial Borrowings (ECB). For details, refer Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers issued by RBI.(https://rbidocs.rbi.org.in/rdocs/notification/PDFs/15MDC8CEB9A7BDE64745B9BE1DCEC3293CA1.PDF)
Can FC-GPR be filed without consideration Amount but against Technical Know-How ???
As per Clause 8E(ii) of the Master Direction issued by RBI on Foreign Investment in India, general permission is available for issue of shares against lump-sum technical know-how fee, royalty due for payment/repayment.
Company A received funds from its sole promoter company B (offshore company) under FDI route in September 2016. Share were allotted after 60 days from the date of receipt of the funds but before 180 days as provided under FEMA.
Section 2(1) c (ii) of Companies (Acceptance of Deposits) Rules, 2014 provides an exception to the application of deposit rules for money received from foreign body corporates.
Will this inflow received as share capital still be considered as deposit?
Rule 2(1)(c)(ii) of the Companies (Acceptance of Deposits) Rules, 2014, any amount received from foreign bodies corporate subject to the provisions of FEMA, 1999 shall not be included in public deposits. Thus, the inflow received as share capital from foreign body corporate shall not be considered as deposit provided the company complies with the provisions of FEMA, 1999.
I have received inward remittance two times in two currency (USD & GBP) and i want to allotment in one board meeting ….can i do so ?
Yes, allotment of shares can be made in one board meeting, although for two different remittance separate advance reporting forms will be filed with RBI as per Notification No. FEMA 20 /2000-RB dated May 3, 2000, but single board meeting/board resolution is enough to show the allotment.
Dear sir if a company is getting money from different countries via their holdings and ultimate holdings to Indian subsi on monthly basis through proper banking channel route. Is there is any other compliance that we need to ensure under RBI etc.
Can you please tell us on what account this money is being received as? Is it towards share capital or loan or as sale proceeds? Each leg has its own set of documentation and related compliances.
A Pvt. Ltd Co. incorporated in India in Oct 2016 with one non-resident & one resident subscriber to MOA could get bank a/c opened in Dec 2016 i.e after 2 months from DOI.
Share Application money from Non-Resident & Resident Subscriber recd now after 2 months of DOI.
What will be date of allotment of shares under Co Act & FEMA – Current Board meeting date for allotment now after receipt of money or DOI?
Under the Companies Act, 2013, shares can be allotted at any time after the receipt of money but within maximum 60 days. However, in case of incorporation of company, as a general practice, shares are deemed to be allotted to the subscribers to MOA on the date of incorporation of the company and as per Section 10 of the Companies Act, 2013, money payable towards subscription becomes a debt due from the subscribers to MOA. Thus, the company shall issue share certificates within 2 months of the date of incorporation in compliance with Section 56 of the Companies Act, 2013 and can receive the money at anytime thereafter. It shall be shown as a debt due from subscribers till its receipt.
As per FEMA, 1999, shares shall be allotted within maximum 180 days from the receipt of money.
Sir is it mandatory to attach firc in form FC-GPR
FIRC is mandatory to be attached in Advance Remittance Form and not in form FC-GPR.
What if a company has not filed the FCGPR? What are the provision regarding this?
Every company which deals with foreign exchange regarding allotment of share need to file FCGPR with in 30 days from the date of allotment. If company do not file FC-GPR with in such period, it will amount to contravention attract penalty given under section 13 i.e any person contravenes any provision of this Act, 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 authorisation is issued by the Reserve Bank,
(a) he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable,
(b) or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one,
(c) further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues
However, it is advised that you may file suitable application for compounding with the Authority.
very well explained sir. thank you for this
This article is very useful. I had a query, as you say the 1st step is to receive foreign money, but in how many days that money shall be received by the Company.
Fact of the case is not clear.
Can you Suggest me what to do on these Query
Please refer to the FCGPR submitted by you for issue of shares on 13/12/14
In this connection it is observed that the first issue of shares to non resident is on RIGHTS basis.You are requested to clarify the same.
You are also requested to submit CS compliance certificate to Reg.6 of FEMA 20 for issue of shares on rights basis.
We would like to request you to seek professional advice on this matter further.
You can always reach us at – 011-45152802/9810933028
where to get this certificate format “CS compliance certificate to Reg.6 of FEMA 20 for issue of shares on rights basis”.
You can contact your AD bank. They can provide you the format for CS Certificate.