Consolidated FDI Policy Circular of 2020

Paragraph Annexure-5 Annexure 5

Chapter: Annexures · Annexures
Text as on: As issued 15 October 2020; Press Notes since are not applied

Annexure-5

Remittance, Reporting and Violation

1. Remittance and Repatriation

1.1 Remittance of sale proceeds/Remittance on winding up/Liquidation of

Companies:

(i) Sale proceeds of shares and securities and their remittance is ‘remittance of

asset’ governed by The Foreign Exchange Management (Remittance of

Assets) Regulations, 2000 under FEMA.

(ii) AD Category-I bank can allow the remittance of sale proceeds of a security

(net of applicable taxes) to the seller of shares resident outside India,

provided the security has been held on repatriation basis, the sale of

security has been made in accordance with the prescribed guidelines and

NOC/tax clearance certificate from the Income Tax Department has been

produced.

(iii) Remittance on winding up/liquidation of Companies

AD Category-I banks have been allowed to remit winding up proceeds of companies in India, which are under liquidation, subject to payment of applicable taxes. Liquidation may be subject to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act, as applicable. AD Category-I banks shall allow the remittance provided the applicant submits:

a. No objection or Tax clearance certificate from Income Tax Department for the remittance.

b. Auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for.

c. Auditor's certificate to the effect that the winding up is in accordance with the provisions of the Companies Act, as applicable.

d. In case of winding up otherwise than by a court, an auditor's certificate to the effect that there are no legal proceeding spending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance.

1.2 Repatriation of Dividend

Dividends are freely repatriable without any restrictions (net after Tax deduction at

source or Dividend Distribution Tax, if any, as the case may be). The repatriation is

governed by the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.

1.3 Repatriation of Interest

Interest on fully, mandatorily & compulsorily convertible debentures is also freely

repatriable without any restrictions (net of applicable taxes). The repatriation is

governed by the provisions of the Foreign Exchange Management (Current Account

Transactions) Rules, 2000, as amended from time to time.

2. Reporting of FDI The reporting requirements for any investment in India by a person resident in India under Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 are specified by the RBI. Regulation 4 of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 vide notification No. FEMA. 395/2019-RB dated 17.10.2019 issued by the RBI stipulates the reporting requirement for any investment in India by a person resident outside India.

All the reporting is required to be done through the Single Master Form (SMF) available on the Foreign Investment Reporting and Management System (FIRMS) platform at https://firms.rbi.org.in.The user manual for reporting is available at https://firms.rbi.org.in/firms/faces/pages/login.xhtml. The format of the SMF and KYC report is available in the user manual.

3. Adherence to Guidelines/Orders and Consequences of Violation FDI is a capital account transaction and thus any violation of FDI regulations are covered by the penal provisions of the FEMA. Reserve Bank of India administers the FEMA and Directorate of Enforcement under the Ministry of Finance is the authority for the enforcement of FEMA. The Directorate takes up investigation in any contravention of FEMA.

3.1 Penalties

(i) If a person violates/contravenes any FDI Regulations, by way of breach/non-adherence/non-compliance/contravention of any rule, regulation, notification, press note, press release, circular, direction or order issued in exercise of the powers under FEMA or contravenes any conditions subject to which an authorization is issued by the Government of India/ Reserve Bank of India, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contraventions where such amount is quantifiable, or up to two lakh Rupees where the amount is not quantifiable, and where such contraventions is a continuing one, further penalty which may extend to five thousand Rupees for every day after the first day during which the contraventions continues.

(ii) Where a person committing a contravention of any provisions of this Act or of any rule, direction or order made there under is a company (company means anybody corporate and includes a firm or other association of individuals as defined in the Companies Act), every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

(iii)Any Adjudicating Authority adjudging any contraventions under 3.1(i) above, may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government.

3.2 Adjudication and Appeals

(i) For the purpose of adjudication of any contravention of FEMA, the Ministry of Finance as per the provisions contained in the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 appoints officers of the Central Government as the Adjudicating Authorities for holding an enquiry in the manner prescribed. A reasonable opportunity has to be given to the person alleged to have committed contraventions against whom a complaint has been made for being heard before imposing any penalty.

(ii) The Central Government may appoint as per the provisions contained in the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000, an Appellate Authority/ Appellate Tribunal to hear appeals against the orders of the adjudicating authority.

3.3 Compounding Proceedings Under the Foreign Exchange (Compounding Proceedings) Rules 2000, the Central Government may appoint ‘Compounding Authority’ an officer either from Enforcement Directorate or Reserve Bank of India for any person contravening any provisions of the FEMA. The Compounding Authorities are authorized to compound the amount involved in the contravention to the Act made by the person. No contravention shall be compounded unless the amount involved in such contravention is quantifiable. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings. The Compounding

Authority shall pass an order of compounding after affording an opportunity of being heard to all the concerns as expeditiously and not later than 180 days from the date of application made to the Compounding Authority. Compounding Authority shall issue order specifying the provisions of the Act or of the rules, directions, requisitions or orders made there under in respect of which contravention has taken place along with details of the alleged contraventions.

Annexure-5

Remittance, Reporting and Violation

1. Remittance and Repatriation

1.1  Remittance of sale proceeds/Remittance on winding up/Liquidation of

Companies:

(i) Sale proceeds of shares and securities and their remittance is ‘remittance of

asset’ governed by The Foreign Exchange Management (Remittance of

Assets) Regulations, 2000 under FEMA.

(ii) AD Category-I bank can allow the remittance of sale proceeds of a security

(net of applicable taxes) to the seller of shares resident outside India,

provided the security has been held on repatriation basis, the sale of

security has been made in accordance with the prescribed guidelines and

NOC/tax clearance certificate from the Income Tax Department has been

produced.

(iii) Remittance on winding up/liquidation of Companies

AD Category-I banks have been allowed to remit winding up proceeds of
     companies in India, which are under liquidation, subject to payment of
     applicable taxes. Liquidation may be subject to any order issued by the
     court winding up the company or the official liquidator in case of
     voluntary winding up under the provisions of the Companies Act, as
     applicable. AD Category-I banks shall allow the remittance provided the
     applicant submits:

a. No objection or Tax clearance certificate from Income Tax
              Department for the remittance.

b. Auditor's certificate confirming that all liabilities in India have
              been either fully paid or adequately provided for.

c. Auditor's certificate to the effect that the winding up is in
              accordance with the provisions of the Companies Act, as
              applicable.

d. In case of winding up otherwise than by a court, an auditor's
              certificate to the effect that there are no legal proceeding spending
              in any court in India against the applicant or the company under
              liquidation and there is no legal impediment in permitting the
              remittance.

1.2  Repatriation of Dividend

Dividends are freely repatriable without any restrictions (net after Tax deduction at

source or Dividend Distribution Tax, if any, as the case may be). The repatriation is

governed by the provisions of the Foreign Exchange Management (Current Account
     Transactions) Rules, 2000, as amended from time to time.

1.3  Repatriation of Interest

Interest on fully, mandatorily & compulsorily convertible debentures is also freely

repatriable without any restrictions (net of applicable taxes). The repatriation is

governed by the provisions of the Foreign Exchange Management (Current Account

Transactions) Rules, 2000, as amended from time to time.

2. Reporting of FDI
        The reporting requirements for any investment in India by a person resident in India
        under Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 are
        specified by the RBI. Regulation 4 of the Foreign Exchange Management (Mode of
        Payment and Reporting of Non-Debt Instruments) Regulations, 2019 vide notification
        No. FEMA. 395/2019-RB dated 17.10.2019 issued by the RBI stipulates the reporting
        requirement for any investment in India by a person resident outside India.

All the reporting is required to be done through the Single Master Form (SMF)
     available on the Foreign Investment Reporting and Management System (FIRMS)
     platform at https://firms.rbi.org.in.The user manual for reporting is available at
     https://firms.rbi.org.in/firms/faces/pages/login.xhtml. The format of the SMF and
     KYC report is available in the user manual.

3. Adherence to Guidelines/Orders and Consequences of Violation
       FDI is a capital account transaction and thus any violation of FDI regulations are
       covered by the penal provisions of the FEMA. Reserve Bank of India administers the
       FEMA and Directorate of Enforcement under the Ministry of Finance is the authority
       for the enforcement of FEMA. The Directorate takes up investigation in any
       contravention of FEMA.

3.1 Penalties
        (i) If a person violates/contravenes any FDI Regulations, by way of breach/non-
             adherence/non-compliance/contravention of any rule, regulation, notification,
             press note, press release, circular, direction or order issued in exercise of the
             powers under FEMA or contravenes any conditions subject to which an
             authorization is issued by the Government of India/ Reserve Bank of India, he
             shall, upon adjudication, be liable to a penalty up to thrice the sum involved in
             such contraventions where such amount is quantifiable, or up to two lakh Rupees
             where the amount is not quantifiable, and where such contraventions is a
             continuing one, further penalty which may extend to five thousand Rupees for
             every day after the first day during which the contraventions continues.

(ii) Where a person committing a contravention of any provisions of this Act or of any
             rule, direction or order made there under is a company (company means anybody
             corporate and includes a firm or other association of individuals as defined in the
             Companies Act), every person who, at the time the contravention was committed,
             was in charge of, and was responsible to, the company for the conduct of the
             business of the company as well as the company, shall be deemed to be guilty of
             the contravention and shall be liable to be proceeded against and punished
             accordingly.

(iii)Any Adjudicating Authority adjudging any contraventions under 3.1(i) above,
             may, if he thinks fit in addition to any penalty which he may impose for such
             contravention direct that any currency, security or any other money or property in
             respect of which the contravention has taken place shall be confiscated to the
             Central Government.

3.2 Adjudication and Appeals
        (i) For the purpose of adjudication of any contravention of FEMA, the Ministry of
             Finance as per the provisions contained in the Foreign Exchange Management
             (Adjudication Proceedings and Appeal) Rules, 2000 appoints officers of the Central
             Government as the Adjudicating Authorities for holding an enquiry in the manner
             prescribed. A reasonable opportunity has to be given to the person alleged to have
             committed contraventions against whom a complaint has been made for being
             heard before imposing any penalty.

(ii) The Central Government may appoint as per the provisions contained in the
             Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules,
             2000, an Appellate Authority/ Appellate Tribunal to hear appeals against the
             orders of the adjudicating authority.

3.3 Compounding Proceedings
            Under the Foreign Exchange (Compounding Proceedings) Rules 2000, the Central
            Government may appoint ‘Compounding Authority’ an officer either from
            Enforcement Directorate or Reserve Bank of India for any person contravening any
            provisions of the FEMA. The Compounding Authorities are authorized to
            compound the amount involved in the contravention to the Act made by the
            person. No contravention shall be compounded unless the amount involved in such
            contravention is quantifiable. Any second or subsequent contravention committed
            after the expiry of a period of three years from the date on which the contravention
            was previously compounded shall be deemed to be a first contravention. The
            Compounding Authority may call for any information, record or any other
            documents relevant to the compounding proceedings. The Compounding

Authority shall pass an order of compounding after affording an opportunity of
being heard to all the concerns as expeditiously and not later than 180 days from the
date of application made to the Compounding Authority. Compounding Authority
shall issue order specifying the provisions of the Act or of the rules, directions,
requisitions or orders made there under in respect of which contravention has taken
place along with details of the alleged contraventions.