Foreign Investment means any investment made by person resident outside India on a repatriable basis in capital instruments of an Indian Company or to the capital of an LLP
Foreign Direct Investment is the investment through capital instruments by person resident outside India
- In an unlisted Indian Company or
- In 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian Company
- Capital Instrument: It refers to Equity, Preference, Debenture and Share Warrants issued by Indian Company.
- Person resident outside India: Person include Individual and corporate resident outside India
- Unlisted Indian Company: Company incorporated under the provision of Companies Act, 2013 and the same is not listed in any recognized stock exchange.
- Paid-up Equity Capital: Company do generally have capital to start the business and here paid up equity capital refers to actual contribution of promoter to company for the commencement of business.
- Fully Diluted Basis: It means the total number of shares that would be outstanding if all possible sources of conversion are exercised.
- Listed Indian Company: Company incorporated under the Companies Act, 2013 and it is listed in Recognized Stock Exchange.
- Investment: It means to subscribe, acquire, hold or transfer any security or unit issued by a person resident in India
Government of India has prohibited investment by a person resident outside India in the following sectors:-
- Lottery Business, Gambling and betting including casinos
- Chit Fund Business, Nidhi Company, Trading in Transferable Development Rights
- Real Estate Business or Construction of Farm House
- Activities/ sector not open to private sector investment like atomic energy and Railway operations
Further any investment by a person/entity who is a citizen/incorporated of/at Bangladesh or Pakistan requires prior approval from Government.
Other than Negative list, there is sectoral limit as per the regulatory requirement of entity govern here in India to be complied accordingly to proceed further.
There are two major route for receiving Foreign Direct Investment in India from any person resident outside of India.
- Automatic Route
Under this route, there is no need of any Government Approval. However the investor and investee should consider the sectoral limit if any as per FDI Regulation.
- Approval Route
Under this route, the investee company and investor both need to get approval from Government of India. The approval authority for this is “Department for promotion of Industry and Internal Trade, Ministry of Commerce and Industry”. There is website called “Foreign Investment Facilitation Portal” as single point interface to submit the proposal and get the approval from Government of India for foreign investment in the entity.
Irrespective of route and sector, every Foreign Direct Investment is required to report in the given time frame to the Foreign Exchange Department of Reserve Bank of India at the time of receipt of such investment from person resident outside India.
Foreign Exchange Department of RBI has simplified the reporting structure and implemented the Single Master Form since 7th June, 2018 for reporting of Foreign Direct Investment in Investee Company.
Steps of Reporting:
- 1st – Investee Entity need to register itself in RBI FIRMS Portal
On this tab, the entity receiving foreign direct investment are registered and it is done by authorized person. So authority letter is most to obtain on that particular person for filing the details and get it registered at RBI FIRMS Portal, called Entity Master.
- 2nd – Investee Entity should authorize the person to file forms in RBI FIRMS Portal as Business User Registration.
On this again, the investor/person authorize to report the foreign investment, after log in made details in the prescribed form along with supporting documents thereon.
The approving authority for the both case is AD bank. So AD bank is required to solve the query and complexity at first end to submit the required form and filing within given time frame.