FEMA Compliance – A Checklist for Issuance of Equity Instruments in Foreign Inward Remittances
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
Navigating ESG Compliance in India: Evaluating SEBI’s BRSR Core Framework and Value Chain Disclosures
Background ESG investments have been increasingly popular in recent years, with India playing a significant role in this development and the Securities and Exchange Board of India (“SEBI”) issuing Circular No. SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122 dated 12 July 2023 (“BRSR Circular”) pertaining to Business Responsibility and Sustainability Reporting (“BRSR”) Core as a framework for assurance and Environmental, Social, and Governance (“ESG”) disclosures for the value chain. Indian businesses are progressively incorporating sustainability ideas into their framework for conducting business. By integrating ESG factors into their decision-making frameworks, many businesses are developing clear goals targeted at reducing their ecological footprint and enhancing their social and governance practices. There is still a lot of work to be done, even while there has been progress in the inclusion of ESG practices inside the Indian business environment. This is because there are several challenges that must be overcome, such as strengthening corporate resilience, implementing effective risk management, and ensuring stakeholder satisfaction. and ensuring stakeholder satisfaction. THE BRSR CORE The Business Responsibility and Sustainability Reporting or BRSR Core, which is suggested in the BRSR Circular, has been designed to be a subcategory of the present Business Responsibility and Sustainability Reporting format, which was adopted by SEBI in 2021. The nine Key Performance Indicators (“KPI”) that make up the present BRSR format are used to evaluate the listed companies. Providing sustainable goods and services, advocating, and upholding human rights, working to protect and restore the environment, encouraging inclusive growth and equitable development, and ethically delivering value to consumers are a few of these. The KPIs under Annexure I of the BRSR Circular were updated by the BRSR Core to include several additional qualities. These include trash management, employee well-being and safety, facilitating gender diversity, inclusive development, and greenhouse gas, water and energy footprint. ESG Disclosures For Value Chain Value Chain under the BRSR Core has been defined as, “the top upstream and downstream partners of a listed entity, cumulatively comprising 75% of its purchases/sales (by value) respectively.” It stipulates that disclosures for the value chain shall be made by the listed company as per BRSR Core, as part of its annual report. The listed entities shall report the KPIs in the BRSR Core for their value chain to the extent it is attributable to their business with their value chain partner. Such reporting may be segregated for upstream and downstream partners or can be reported on an aggregate basis. ESG disclosures for the value chain shall be applicable to the top 250 listed entities (by market capitalization), on a comply-or-explain basis from FY 2024-25. Assurance Provider The criteria for assurance providers as given under the BRSR Core framework include the following: – Analysis: Pros and Cons SEBI’s implementation of ESG disclosure requirements for value chains is highly relevant in the current context, as this mandate ensures the participation of smaller businesses and intermediaries, such as the micro, small, and medium enterprise (MSME) sector, in adhering to the disclosure standards. The implementation of ESG reporting standards would be facilitated by the integration of KPIs that particularly target the Indian markets, embracing both present and upcoming industries. The implementation of BRSR Core is in line with the recommendations made by the Committee on Business Responsibility Reporting of the Ministry of Corporate Affairs (MCA). The Committee suggested using “BRSR Lite” to convey the ideas of sustainable reporting to unlisted business entities. As it requires a smaller number of characteristics and does not call for detailed disclosures of ESG aspects, BRSR Core can be seen as a reduced version of BRSR Comprehensive. Therefore, it is advantageous for small-scale enterprises to adopt the framework early on. The BRSR Core format is also distinct from the BRSR main format since it encompasses KPIs that are not addressed within the regular BRSR format. Therefore, just receiving reasonable assurance for BRSR Core does not guarantee the overall reliability of the full BRSR disclosure. It solely enhances the reliability of BRSR Core parameters. This specific approach is anticipated to result in a significant bias towards BRSR Core inside internal ESG procedures. Reporting entities are likely to prioritize aligning BRSR Core with reasonable assurance standards, potentially at the expense of other disclosures. Hence, the implementation of BRSR Core, aimed at improving the dependability of ESG disclosures, has the potential to inadvertently divert attention and provide contrasting outcomes. Investors may find the Core ESG rating to be a potential distraction, particularly considering the availability of two full ESG ratings. These ratings include one that is based on current global rating schemes and another that incorporates India-specific criteria, as per the decision made by the SEBI board. The gathering and analysis of data might present a significant difficulty when it comes to the disclosure of information. Due to a wide range of factors, it is probable that value chain partners would employ various methods of data collection and processing. This poses difficulties for the listed businesses in acquiring data for all KPIs. Monitoring and obtaining “third-party endorsed data” from a diverse range of value chain partners can be a challenging task due to the existence of disclosure laws. Conclusion While SEBI’s attempt to improve ESG compliance among listed companies is commendable, it is crucial to acknowledge that there are issues with the current framework that demand quick attention. The regulatory framework demonstrates several advantageous features intended to simplify reporting processes. These initiatives by SEBI show their commitment to establishing business entities that are socially and ecologically conscious, which lays the groundwork for fostering a responsible corporate environment. A sophisticated and flexible strategy that takes into account many traits of businesses and their value chain partners may increase the success and usefulness of ESG disclosures. With the help of this strategy, organisations may align themselves with international ESG disclosure requirements and pursue sustainable practices. – Nehal Daga, Associate, Solomon & Co. About Solomon & Co. Solomon & Co., (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law firms. The Firm is a full-service firm that provides legal
Key Changes under the Foreign Direct Investment Policy (“FDI Policy”) on the Space Sector
Background India accounts for only 2 percent of the currently valued global space economy which is about USD 360 billion despite being among the few spacefaring nations in the world. The Union minister of the State (Independent Charge) for Science and Technology, Dr. Jitendra Singh while inaugurating the IN-SPACe Technical Centre, stated that their target is to take the space economy from 2 percent to 10 percent by the year 2030, targeting a five-fold increase. The vision is to have a 15 percent share in the global space economy by 2047. To realize this vision, there was a need to provide scope for Non-Governmental Entities to participate in the Indian space program and play a key role in boosting India’s market share in the Global Space Economy. In India, players in the private sector industry have been very limited to being vendors or suppliers to the government’s space program. The need to promote private entities to establish themselves as independent players was also emphasized. The Indian Space Policy 2023 was notified as an overarching, composite, and dynamic framework to implement the vision for unlocking India’s potential in the Space sector through enhanced private participation. This policy aims at augmenting space capabilities; enabling, encouraging, and developing a flourishing commercial presence in space; using space as a driver of technology development and derived benefits in allied areas; pursuing international relations, and creating an ecosystem for effective implementation of space applications among all stakeholders. The Government of India to foster growth and innovation and with the vision to promote ease of doing business facilitating greater participation by foreign investors in the Space sector of the economy decided to liberalize the FDI Policy by prescribing liberalized thresholds for various sub-sectors/activities. These amendments to the Policy are expected to attract more foreign and domestic investment in India’s booming space industry. Extant FDI Policy on the Space Sector: 100% FDI was permitted in the establishment and operation of Satellites only through the Government Approval route. Further, such foreign investments were subject to the sectoral guidelines of the Department of Space/ISRO. New Policy on the Space Sector: The Department for Promotion of Industry and Internal Trade (“DPIIT”) vide a Press Note announced the review of the FDI Policy on the Space sector in India to streamline the FDI regulations and pave the way for enhanced participation and collaboration in various segments of the space industry. The proposed reforms seek to provide clarity for FDI in Satellites, Launch Vehicles, and associated systems or subsystems, the Creation of Spaceports for launching and receiving Spacecraft, and manufacturing of space-related components and systems. Pursuant to the significant amendments, now the satellites sub-sector has been divided into three different activities with defined limits for foreign investment in each such sector, subject to the sectoral guidelines issued by the Department of Space from time to time, as follows – (a) For Manufacturing and Operations, Satellite Data Products, and Ground Segment and User Segment, investments up to 74% fall within the Automatic Route, while investments beyond 74% will fall within the Approval Route, i.e. require Government Approval; (b) For Launch vehicles and associated systems and subsystems, Creation of Spaceports for launching and receiving Spacecrafts, investments up to 49% fall within the Automatic Route, while investments beyond 49% will fall within the Approval Route, i.e. require Government Approval; (c) For Manufacturing of components and systems/sub-systems for satellites, ground segment, and user segment, investments up to 100% fall within Automatic Route and there is no requirement of Government approval. Further, the amended policy provides clear definitions of various activities within the space sector including satellite manufacturing and operations, satellite data products, ground segment, user segment, launch vehicles, creation of spaceports, and manufacturing of components and systems/subsystems. Conclusion: Evidently, this policy is the Government’s attempt to encourage investment, innovation, and technology transfer in the Space sector through the private sector. It is aimed at bringing about a new era of opportunities and growth in India’s space industry. With the enhanced contribution from both domestic as well as foreign investors, the country can strengthen its position in the global market as a global hub for space technology and innovation. The increased private sector participation would help in generating employment and enabling modern technology absorption enabling companies to set up their manufacturing setups in India duly encouraging the Make in India (MII) initiative of the Government. The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. As such, it should not be used as a substitute for consultation with a competent adviser. Before making any decision or taking any action, the reader should always consult a professional adviser relating to the relevant article posting. – Kinjal Champaneria, Partner, and Shakshi Bafna, Associate, Solomon & Co. About Solomon & Co. Solomon & Co., (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law firms. The Firm is a full-service firm that provides legal services to Indian and international companies and high-net-worth individuals on all aspects of Indian law.
