What FEMA compliance applies to a company receiving foreign investment or investing abroad?

Question

My company is receiving a fresh round of foreign direct investment and separately wants to set up a subsidiary overseas. What FEMA filings apply? Before I spend money on it, I want to know whether Foreign Exchange Management Act 1999, Section 6 gives me a remedy here and what proof I would need. Any Section numbers I can quote when I write to them would be useful.

MyVakeel Legal Desk · Accepted Answer

Foreign Exchange Management Act 1999, Section 6, Foreign Exchange Management (Non-debt Instruments) Rules 2019, Rule 4 and Foreign Exchange Management (Overseas Investment) Rules 2022, Rule 9 is what decides this question in India. Read it alongside the provisions named, because the relief available to you turns on the facts you can prove on paper.

Section 6 of FEMA 1999 empowers the Reserve Bank of India to regulate or restrict capital account transactions, including inbound foreign direct investment and outbound overseas direct investment by Indian entities.

Rule 4 of the Non-debt Instruments Rules 2019 sets out the entry routes, sectoral caps and pricing guidelines applicable to foreign direct investment into an Indian company, requiring investment to be reported to the Reserve Bank through Form FC-GPR within the prescribed time after allotment of shares.

Rule 9 of the Overseas Investment Rules 2022 governs the manner in which an Indian entity can make overseas direct investment through equity or debt in a foreign entity, including reporting through Form FC and compliance with financial commitment limits linked to net worth.

Companies must also comply with annual reporting obligations such as the Foreign Liabilities and Assets return and, for entities with overseas subsidiaries, the Annual Performance Report, failing which compounding proceedings before the Reserve Bank may become necessary.

Sector-specific conditions, such as caps and government approval routes for certain industries, must be checked before accepting foreign investment, since investment outside the permitted route or cap constitutes a contravention under FEMA attracting penalty proceedings.

In practice, in this order: 1) Verify the applicable entry route, sectoral cap and pricing guidelines before accepting foreign investment; 2) File Form FC-GPR with the Reserve Bank within the prescribed timeline after share allotment; 3) For outbound investment, file the requisite Form FC and monitor the financial commitment limit under net worth; 4) Engage a FEMA compliance professional to file annual returns and address any delayed reporting through compounding if needed.

Timing matters here: Foreign Exchange Management Act 1999, Section 6 works on limitation periods, so a fema compliance fdi odi claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.