Compliance for Foreign Investments in India against Shares Capital

There are few rules and regulations which have to be followed when we are receiving share application money in foreign currency.

Step 1 of 8

We have to file an Advance Reporting Form with the RBI within 30 days from the receipt of the share application money. The advance reporting form is available on the RBI website: http://ebiz.gov.in/app/login

The Form needs to be filled in manually on the website itself. The general basic details covered in the form are:

1. PAN of the Investee Company
2. Basic Details of the Investee Company (Company issuing the shares)
3. Basic Details of the Foreign Investor (Person investing the money)
4. Date of Receipt of Funds
5. Amount:
   • Amount received in Foreign Currency
   • Currency Type like USD, GBP etc
   • Exchange Rate for Conversion
   • Amount in Indian Rupees
6. Whether Investment is under Automatic Route or Approval Route
   • If it is automatic route (pre-approved by govt for all the users of some sectors), then click on automatic route and proceed
   • If it requires an approval from the RBI, then click on approval route and mention the date and reference number of the approval
7. Details of AD Bank: The name of the Bank in which the money has been received, the branch name also has to be mentioned
8. Address & Contact Details of the AD Bank
9. Attachments:
   • KYC – It will be shared by the Remitter bank as well as the AD Bank
   • Both KYC needs to be attached here
   • Foreign Inward Remittance Certificate (FIRC): This is a certificate that will be issued by the AD Bank and needs to be attached
10. Authorised Signature of the Investee Company
11. Details of AD Bank to whom the form is submitted – The form will be sent to the bank to confirm all the details and once the bank and RBI checks it, then the acknowledgment will be generated for your reference

Step 2 of 8

As per the provisions of the Companies Act, 2013, the company has to keep the share application money in a separate bank account and cannot utilize the money before the allotment of the shares to the investors. If the Company contravenes the provisions of the Companies Act, 2013 the its promoters and directors will be liable for a penalty which may extend to the amount involved or 2 crores rupees, whichever is higher and the company shall also refund all monies to the subscribers within a period of 30 days from the date of penalty along with the interest of 12% p.a.

Step 3 of 8

The Company has to allot/issue the shares within the time frame given by RBI and MCA accordingly. The time limits are:

• RBI – The shares must be allotted within 180 days from the date of receipt of funds
• MCA – The shares must be allotted within 60 days from the date of receipt of funds

So, in a nutshell, the time limit to issue/allot the shares comes down to 60 days as per the MCA.

Step 4 of 8

Conduct a Board Meeting with the Board of Directors to allot the shares.

Step 5 of 8

A report in Form FCGPR (Foreign Currency – General Purchase Register): This form needs to be filed with the RBI within 30 days from the date of allotment of shares. The Form needs to be filled in manually and is available at the RBI website: http://ebiz.gov.in/app/login

The details covered in the form are:

1. PAN of the Investee Company
2. Date of issue of shares
3. Basic details of the Investee Company
4. Description of the main business activity: This basically covers the description and the activities of the business that is given at the time of obtaining the registration from the RBI
5. Location of the project for which the investment has been made
6. Percentage(%) of FDI allowed as per FDI Policy
7. State whether it is allowed under Automatic or Approval Route
8. Details of Foreign Investor
9. Type of Security Issues:
   • Whether the nature of the security is Equity, Debentures, Others (Specify)
   • Number
   • Face Value
   • Premium
   • Issue Price/Share
   • Amount of Inflow
10. Nature and date of Issue
11. This is further divided into Cash and Non-Cash Transaction
12. The nature of the issue i.e IPO/FPO, preferential allotment/private placement, Rights, ESOP, other(specify)
    • Break up of premium
    • Total Inflow in rupees on account of shares/convertible debentures/others to non-residents
13. It asks for further 3 options – Remittance through AD, debit to NRE/FCNR/Escrow A/c with bank, Others (Specify)
14. Date of Advance Reporting to the RBI regarding the above-mentioned transaction
15. Disclosure of the Fair Value of the shares issues
    • Post issue pattern of shareholding
    • Declaration by the Investee Company (Select tick whichever applicable)
16. Attachments:
    • Company Secretary Certificate
    • Share Valuation Certificate by Chartered Accountant
    • Board Resolution for share allotment

Step 6 of 8

Filing of Form PAS-3 with MCA: This form needs to be filed with the MCA within 30 days from the date of allotment of shares. The Form needs to be downloaded from the MCA website and needs to be filled manually and then upload the form. The Form can be available at MCA Website: http://www.mca.gov.in/MinistryV2/companyformsdownload.html

The details covered in the form are:

1. CIN of the Company  – Once you fill this, click on Pre Fill and the basic details of the company will be automatically filled in the form
2. Number of Allotment
3. Date of Allotment
4. Details of Shares issued
5. Details of the Consideration Received
6. Whether an agreement or contract is executed in writing for allotting securities for consideration other than cash
7. Whether Valuation report of the evaluated person has been obtained
   • Bonus Shares issued
   • Capital structure of the Company after taking into consideration the above allotment shares
   • Debt structure of the Company after taking into consideration the above allotment shares
8.  Attachments:
   • List of Allottees of shares
   • Board Resolution
9. This form also needs to be signed by a practicing CA/CS Chartered Accountant/ Company Secretary

Step 7 of 8

The Company has to issue the Share Certificate within 60 days from the allotment of shares.

Step 8 of 8

1. Payment of Stamp Duty: The company will also have to pay the stamp duty on the shares allotted as per the State in which the Company is registered.
2. Accounting Entries:
   1. When the application money is received:
      • Bank A/c
      • To Share Application Money A/c
      • To Foreign Exchange fluctuation A/c
3.  When the Share Allotment is done:
   • Share Application Money A/c
   • To Share Capital A/c
   • To Share Premium A/c