Overseas Direct Investment involves outflow of funds from the country and therefore, the Government wants to be more vigilant about it. Provisions related to ODI already contain a lot of permissions from the Reserve Bank of India and also free ODIs are permitted subject to fulfillment of lots of attached conditions.
Similarly, once the process of ODI completes, various reporting obligations start for investors. In this article, we have carried out a detailed discussion of reporting obligations of investors and other regulations applicable.
1. Post Investment Obligations of Indian Party and resident Individual
Post making Investment, an Indian party or resident Investment are required to fulfill the following conditions in accordance with Regulation No. B.14 of Master Direction No. 15/2015-16 dated 1st January 2016:
- Receive Share Certificates/Other Documentary Evidence: An Indian Party shall Receive share certificates/ any other documentary evidence of investment in the overseas JV / WOS to the satisfaction of RBI. Such certificate/Documentary Evidence must be received within 6 months from:
- The date of effecting remittance or
- the date on which the amount to be capitalised became due to the Indian Party; or
- the date on which the amount due was allowed to be capitalised
- Repatriation of Dues to India: Repatriate to India all dues receivable from the overseas JV/WOS, like dividend, royalty, technical fees etc within 60 days of its falling due. The Reserve Bank of India may grant further periods.
- Submission of Annual Performance Report (APR): Indian Party or Resident Individual are required to submit APR in Part II of Form ODI in respect of each JV/WOS outside India set up or acquired by the Indian party by 31 December every year. APR shall be submitted through Authorised Dealer Bank and it shall be based on Audited Annual accounts of previous year of JV/WOS.
Where law of host country does not mandatorily require an audit of JV or WOS, APR shall be based on unaudited Books of accounts subject to the following conditions:
- The Statutory Auditors of the Indian Party shall certify that ‘the un-audited annual accounts of the JV / WOS reflect the true and fair picture of the affairs of the JV / WOS’ and
- b. That the un-audited annual accounts of the JV / WOS have been adopted and ratified by the Board of the Indian Party.
- Reporting requirement for Oil Sector: Reporting requirements including submission of Annual Performance Report are also applicable for investors in unincorporated entities in the oil sector
- Submission of Return on Foreign Liabilities and Assets (FLA): All Indian Companies which have made Overseas Direct investment are required to file an Annual Form on Foreign Liabilities and Assets (FLA) every year by 15 July.
2. Allotment of Unique Identification Number
- On reporting by Authorised Designated banks, The Reserve Bank of India allots a Unique Identification Number to each JV or WOS.
- The Unique Identification Number allotted to each JV or WOS abroad, is required to be quoted in all correspondence with the Reserve Bank.
- AD Category – I banks may allow additional investment (or financial commitment) in an existing overseas concern set up by an Indian Party only after the Reserve Bank has allotted necessary Unique Identification Number to the overseas project.
3. Reporting requirements for Overseas Direct Investments
With Effect from 01.06.2007, all reporting related to ODI has been subsumed into one form OD. Form ODI contains following 4 parts:
- Part I – includes the following:
- Section A – Details of the Indian Party Section
- Section B – Details of Investment (or financial commitment) in New Project
- Section C – Details of Investment (or financial commitment) in Existing Project
- Section D – Funding for JV / WOS
- Section E – Declaration by the Indian Party (to be retained by AD Category – I bank)
- Section F – Certificate by the Statutory Auditors of the Indian Party (to be retained by AD Category – I bank)
- Part II – Reporting of Remittances (or financial commitment)
- Part III – Annual Performance Report (APR)
- Part IV – Report on Closure/Disinvestment/Voluntary Liquidation/Winding up of JV / WOS.
3.1 At time of Initial Investment (Part-I-Section A & B) :
- Every Indian Party seeking to invest in JV/WOS overseas, either by automatic route or approval route, shall file Part-A of Form ODI (barring section-C) with Authorised Designated Bank.
- Obtaining UDIN:
- Automatic Route: in case of new proposals, immediately after effecting remittance, the AD Category – I bank shall forward the Part I of the form along with Part II to RBI for obtaining the Unique Identification Number.
- Approval Route: Before investment, AD bank shall scrutnize the Part I of the form ODI and then submit the same to RBI along with their recommendations. Upon approval, RBI shall return the Part-I to the AD Bank. Immediately after effecting remittance under ODI, the AD Bank shall resubmit the form to RBI alongwith part-II of the form.
- Annual Performance Report (APR) (Part III) should be submitted, through the designated AD Category-I bank, every year within 3 months of the closing of annual accounts of the JV / WOS.
- All amounts of foreign currency (FCY) and Indian rupees (INR) should be in thousands only.
- Documents to be submitted alongwith Form ODI to RBI for approval purpose:
- A report from the bankers of the Indian party in a sealed / closed cover.
- The latest Annual Accounts, i.e. Balance Sheet and Profit and Loss Account of the Indian party along with the Directors’ Report.
- Additional documents as under, if the application is made for partial / full take over of an existing foreign concern:-
- A copy of the certificate of incorporation of the foreign concern;
- Latest Annual Accounts, i.e. the Balance Sheet and Profit and Loss Account of the foreign concern along with Directors’ Report; and
- A copy of the share valuation certificate from:
- Category I Merchant Banker registered with SEBI, or, an Investment Banker / Merchant Banker registered with the appropriate regulatory authority in the host country, where the investment is more than USD 5 million (US Dollars Five million), and
- in all other cases, by a Chartered Accountant or a Certified Public Accountant.
- A certified copy of the Resolution of the Board of Directors of the Indian party/(ies) approving the proposed investment.
3.2 At the time of subsequent investment:
- Section-C and Section-D of Part-I are required to be submitted, whenever the initial capital or financing structure of the JV / WOS reported to the Reserve Bank at the time of the initial remittance / approval undergoes changes by way of expansion, merger, infusion of additional capital, etc.
- In case of supplementary remittance, only Part II of the Form ODI is required to be submitted by AD Bank with Reserve Bank of India. However, in case of Change in capital structure / financing pattern, etc. of the JV / WOS since reporting at the time of initial investment, Part I of the form (barring Sections A and B) need to be submitted along with Part II.
3.3 In case of Closure/ Windup/Divestment/Liquidation of JV/WOS
- When JV / WOS is closed / wound up / disinvested / liquidated, etc., report should be submitted to Reserve Bank within 30 days of the disinvestment.
3.4 Reporting obligation in case of Multiple Indian Party/Resident Individuals are investing in same JV/WOS
- In case more than one Indian promoter is investing in the same JV / WOS, details of each such promoter should be provided in a single format by the AD designated for the JV / WOS.
- Also, in such a case, obligation to file APR shall lie on the investor with maximum stake in JV/WOS. Alternatively, the Indian party/Resident Individuals holding stake may mutually address to assign the responsibility of APR submission to a designated entity.
4. Disinvestment in ODI
4.1 Disinvestment by way of sale of Shares of JV/WOS
- An indian party may transfer, by way of sales, shares of JV/WOS without any prior approval of RBI to:
- another Indian Party which comply with provisions of Regulations, as applicable; or
- A person resident outside India.
- Sale of shares shall be made subject to fulfilment of following conditions:
- The same does not result in any write off of the investment made;
- Sale is effected through a stock exchange where the shares of JV / WOS are listed.
- If shares are not listed on any stock exchange and shares are divested by private placement, the share price shall not be less than value certified by Chartered Accountant or Certified Public Accountant.
- The Indian Party does not have any outstanding dues from JV/WOS by way of dividend, technical know how, export proceeds etc.
- The Overseas concern has been in operation for at least one complete year and Annual Performance report together with audited Financial Statement for such year are submitted with RBI.
- The Indian party is not under investigation by CBI/DoE/SEBI/IRDA or any other regulatory authority.
- Reporting about such disinvestment should be made to RBI within 30 days.
4.2 Disinvestment by way of transfer of shares of JV/WOS involving write off of the investment
Indian party may disinvest without prior approval of RBI in any of the following case where the amount repatriated after disinvestment is less than the original amount invested:
- In case where JV/WOS is listed on overseas stock exchange.
- Where the Indian Party is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore;
- Where the Indian Party is an unlisted company and the investment in the overseas JV / WOS does not exceed USD 10 million; and
- Where the Indian Party is a listed company with net worth of less than 100 crore but investment in an overseas JV/WOS does not exceed USD 10 million.
Where above-mentioned conditions are not satisfied, the Indian Company has to first apply for RBI Approval for disinvestment.
5. Additional Points
5.1 opening of Foreign Currency Account (FCA) abroad by Indian Party for ODI
- As per Para I B.22 of RBI Master Circular, eligible Indian party may open, hold and maintain FCA abroad for the purpose of ODI subject to fulfilment of following terms and conditions:
- Host country regulations require that investment in their country must route through a designated account.
- FCA shall be open, held and maintained as per regulations of Host country
- Remittance sent to FCA shall be utilised for making ODI in JV/WOS only.
- Any amount received in the FCA by way of dividend or any other income shall be repatriated to India within 30 days from date of credit
- The Indian party should submit the details of debits and credits in the FCA on yearly basis to the designated AD bank with a certificate from the Statutory Auditors of the Indian party certifying that the FCA was maintained as per the host country laws and the extant FEMA regulations / provisions as applicable.
- The FCA so opened shall be closed immediately or within 30 days from the date of disinvestment from JV / WOS or cessation thereof.
5.2 Pledge of shares of Joint Venture (JV), Wholly Owned Subsidiary (WOS) and Step Down Subsidiary (SDS)
- An Indian Party may create charge, by way of pledge, on the shares of Joint Venture (JV) or Wholly Owned Subsidiary (WOS) or Step Down Subsidiary (SDS) outside India as a security in favour of an Authorized Dealer or a public financial institution in India or an overseas lender.
- Shares can be pledge for availing of fund based or non-fund based facility for itself (i.e. the Indian Party) or for its JV / WOS / SDS whose shares have been pledged, or for any other JV / WOS / SDS of the Indian Party subject to fulfilment of mentioned terms and conditions.