RESERVE BANK OF INDIA TO MONITOR FOREIGN INVESTMENTS RECEIVED BY INDIAN ENTITIES

The Reserve Bank of India (RBI) has recently issued a circular, RBI/2017-18/194 A.P (DIR Series) Circular No.30, dated, 07^th June 2018, to introduce a single master form (SMF) to be filled online by Indian entities receiving foreign investment. The RBI addressed this Circular to all Category I Authorized Dealer Banks including Commercial Banks, Urban Cooperative Banks, and State Cooperative Banks, etc, so that they could intimate the contents of this Circular to their concerned customers.

As per the Circular, prior to the implementation of the SMF, the Indian entities would now have to submit data on total foreign investment they have received so far to the RBI on its website on or before 20^th of July 2018. Further the Indian entities would have to declare that the foreign investment received was within the sectoral cap and in accordance with the Foreign Exchange Management (Transfer or issue of security by person resident outside India) Regulations, 2017. Additionally they would have to state that the foreign investment received and reported now would be utilized in compliance with the provisions of Prevention of Money Laundering Act 2002 (PMLA) and Unlawful Activities (Prevention) Act, 1967 (UAPA). Such a declaration would have to be certified by the Company Secretary or a Chartered Accountant, etc.

The preliminary information would consist details about the types of foreign investments and investors, types of instruments issued to the investors, declaration by the investor, modes of payment of investment amount, whether the Indian entities are being investigated by Enforcement Directorate, Central Bureau of Investigation or any other agency for violation of Foreign Exchange Management Act, 1999 (FEMA), etc.

The aforesaid information may enable the RBI and the Government of India to monitor the quantum and the quality of foreign investments made in India.

Reportedly, the issue of this Circular seems to have created chaos and confusion amongst companies as they would have to submit a whole range of information pertaining to the foreign investments they have been receiving over the years, by 20^th of July 2018. Also many companies are reluctant to disclose such information to RBI, as they might not have kept a record of the same and fear that they may be held liable for incorrect reporting or non-compliance of the said RBI directions.

The RBI has also stated in the Circular that Indian entities not complying with the aforesaid directions would not be able to receive any further foreign investments and be treated as non-compliant with Foreign Exchange Management Act, 1999 (FEMA).

Harini Daliparthy,

Senior Legal Associate

with

Srishti Banerjee

Faculty of Law, ICFAI Foundation for Higher Education (IFHE), Hyderabad

Intern,

The Indian Lawyer