FEMA Compliance – A Checklist for Issuance of Equity Instruments in Foreign Inward Remittances

Sr. No	Event	Form Required	Documents required	Compliance requirements	Timeline
	Issuance of equity instruments by an Indian company to a person resident outside India and reckoned as Foreign Direct Investment under Foreign Exchange Management [Non-debt Instruments (NDI)] Rules, 2019. (Including issue of bonus shares/rights issue/ shares issued directly or on amalgamation/merger/demerger approved by NCLT or competent authority/issue of equity instruments on cross border merger/sweat equity/ ESOP/ conversion of convertible notes; issuance of equity instruments to foreign portfolio investors which is considered as FDI within the meaning of rule 2(t) of NDI Rules, 2019.)	FCGPR	Declaration from the authorized representative of the Indian company in a prescribed format*.Certificate from a company secretary (In case a company has a company secretary on the Board then from such company secretary and in other cases by practicing company secretary) in a prescribed format*.Valuation certificate (should not be more than 90 days old as on the date of allotment of shares), for rights issue it is not required.Form PAS-3 (e-form for allotment of equity instruments)/Board Resolution for allotment of equity instruments.Memorandum of Association (In case of First Subscription).Acknowledgement letter of FC-GPR/FC-TRS, as applicable, of the original investment – In case of Bonus/Rights issue.Extract of relevant approvals from the competent authority in case of Merger/ Demerger.A no-objection certificate (NOC) from the remitter for issuing equity instruments to the beneficial owner mentioning their relationship if applicable (e.g., Nominee Shareholder).Letter from the beneficial owner explaining the reason for the remitter making remittance on its behalf if applicable (e.g., Nominee Shareholder).Copy of agreement/board resolution from the investee company for issuing equity instruments to a person other than from whom the remittance has been received (e.g., Nominee Shareholder).Foreign Inward Remittance Certificate (FIRC).KYC of both the remitter and beneficial owner.Note: – There is no resubmission for this filing, A fresh form is required to be filed in case such form is rejected.	It does not breach the sectoral cap applicable to the issuer company. Compliance with Foreign Exchange Management (NDI) Rules, 2019.	Within 30 days from the date of issue of the equity instruments.
	Annual Return: – An Indian company that has received FDI or an LLP which has received investment by way of capital contribution in the previous year(s) including the current year or has made overseas investment.	Foreign Liabilities and AssetsReturn(“FLA”)	Financials as of end of the relevant Financial Year. Form FLA could be filed with the unaudited financials. A revised return could be filed once the relevant financials are audited.	In case of revision of return, approval of RBI is to be obtained through the Flair portal of RBI.	On or before the 15th of July of each year.
	Transfer of equity instruments (Including transfer of equity instruments on a recognized stock exchange by a person resident outside India; payment on a deferred basis, transfer of participating interest/rights in oil fields, buying back shares in a scheme of amalgamation/de-merger/ of Indian companies approved by NCLT/ competent authority.	FCTRS	Documents required in case of sale (Private Arrangement) Share transfer agreement/SH-4(Share transfer form).Valuation Certificate (should not be more than 90 days old as of the date of share transfer).Non-resident declaration in the prescribed format*.In case of sale by a non-resident, acknowledgment of FC-GPR/ FC-TRS as applicable for the Equity instruments whereby such equity instruments have been acquired by such non-resident.FIRC /Outward remittance certificate and KYC. In case of Gift: – Relevant regulatory approvals, wherever applicable.Consent letter: Consent letter between the donor and donee for the transfer. Non-resident declaration in the prescribed format*.Acknowledgement letter of initial allotment. In case of transfer by way of sale (on Stock Exchange):- Broker’s Note containing details such as date of trade/settlement, no. of shares transferred, name of investee company, and consideration amount.Non-resident declaration in the prescribed format*.Outward Remittance Certificate.Copy of acknowledgment of FC-GPR/ FC-TRS as applicable for the equity instruments whereby such equity instruments have been acquired by such non-resident.	Prior government approval shall be obtained for any transfer in case the company is engaged in a sector which requires government approval. Compliance with Foreign Exchange Management (NDI) Rules, 2019.	Within 60 days of transfer of equity instruments or receipt/ remittance of funds whichever is earlier.
	Conversion of External Commercial Borrowing (ECB) into equity (Including full conversion of ECB into equity and partial conversion of ECB into equity)	FCGPR and ECB-2	For FCGPR please refer to documents in point 1. For ECB-2, a Loan Registration Number (LRN) is required to be obtained from RBI.	Compliance with Foreign Exchange Management (NDI) Rules, 2019.	Within seven working days from the close of month to which it relates.
	Issuing employees stock options (ESOP) to persons resident outside India who are its employees/ directors or employees/ directors of its holding company/ joint venture/ wholly owned overseas subsidiary/ subsidiaries	ESOP	Relevant extracts of the ESOP scheme.CS certificate in a prescribed format*.Declaration in a prescribed format*.Letter of Grant/ Offer – which shall contain the name of the employee in the letter of grant vis a vis name mentioned in the CS certificate, no. of shares and the exercise price.	Prior government approval in case of issue to citizens of Bangladesh or Pakistan. Compliance with Foreign Exchange Management (NDI) Rules, 2019.	Within 30 days from the date of issue of ESOPs.
	Downstream Investment:  An Indian entity or an investment vehicle making a downstream investment in another Indian entity which is considered an indirect foreign investment.	Form DI	PAS – 3 (e-form for allotment of equity instruments); or SH-4 (Share Transfer form) as the case may be.Certified true copy of Board Resolution for allotment of equity instruments or noting Transfer of equity instruments as the case may be.Certified true copy of Shareholders Resolution if applicable.Valuation Certificate.In case of an unlisted company – Declaration by an authorized representative of such company in a prescribed format*.	Compliance with Foreign Exchange Management (NDI) Rules, 2019.	Within 30 days from the date of allotment of equity instruments by such Indian entity in which downstream investment is made.
	Investment by Foreign Venture Capital Investor (“FVCI”)	FCGPR	Please refer to documents in point 1.	Compliance with Foreign Exchange Management (NDI) Rules, 2019.	Within 30 days from the date of issue of the equity instruments.
Requirement of Government Approval in case where Investment is received from countries sharing Land Border with India
	Investment from such countries	An entity of a country, that shares a land border with India or the beneficial owner of an investment into India who is situated in or is a citizen of any such country, shall invest only with the Government approval.A citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route, in sectors or activities other than defence, space, atomic energy, and such other sectors or activities prohibited for foreign investment.In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction or purview of the above point (i) and (ii), such subsequent change in beneficial ownership shall also require government approval.

* For prescribed format for declarations – Please refer formats specified in Foreign Investment Reporting and Management System (Firms) User Manual.

Surendra Rahalkar,

Associate, Solomon & Co.

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