RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

“FOREIGN INVESTMENT SINGLE MASTER FORM” AUTHOR: CS ASHISH BAID CO-AUTHOR: CS ARJUN SHARMA

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RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

Abbreviation: CA 2013

-

Companies Act, 2013 (which includes erstwhile Companies Act, 1956)

SEBI

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Securities Exchange Board of India

RBI

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Reserve Bank of India

SMF

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Single Master Form

AD Bank

-

Authorized Dealer Bank

FDI

-

Foreign Direct Investment

FEMA

-

Foreign Exchange Management Act

NR

-

Non-Resident

R

-

Resident

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RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

PREFACE: In continuation of the SEBI circular for the listed companies on monitoring of the Foreign Direct Investment, which was made applicable for all the listed companies to appoint depositories, RBI vide its circular1 dated June 07, 2018 issued circular on Foreign Investment in India whereby all the RBI reporting pertaining to the FDI will be done in the Single Master Form. The proposed SMF will be online form and it contains formats of various forms which are required to be updated with RBI from time to time on various occasion pertaining to the Foreign Investment. This move of simplifying the formats will take the compliance to the next level, whereby filing of various forms for single transaction would no longer required and single master form will be of helpful. With this docket, certain grey areas are highlighted with practical difficulties and liabilities on Practicing Company Secretaries / CS in whole time employment will get widen with the certification of such forms. This circular is basically divided into two parts: (i) input data on total Foreign Investment (between June 28, 2018 to July 12, 2018); and (ii) Reporting of all transaction pertaining to Foreign Investment in Single Master Form. However, the said circular is issued with an intention of ease of doing business and to simply the reporting procedure to RBI, nevertheless there lies few ambiguity as to which forms would no longer be required, as forms like Advance Reporting Form, which is required to be filed with Authorised Dealer Bank within one month from the date of the receipt of the money towards share capital subscription and Form FCGPR to be filed with Authorised Dealer Bank within 180 days from the date of allotment of securities. With this explanation, it is very much clear that two different forms for different purposes are required to be filed with the RBI through Authorised Dealer Bank for single transition. Hence, ambiguity still lies with Single Master Form on applicability of such forms which are required to be filed with AD Bank.

______________________________________ 1

RBI Circular: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT194481067EB1B554402821A8C2AB7A52009.PDF

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RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

FOREIGN INVESTMENT IN AN INDIAN ENTITY – SINGLE MASTER FORM RBI circular on Single Master Form is broadly classified into two parts based on its applicability. Both the categories are defined based on the format in which the details of foreign investment is to be reported to RBI. First part of this circular requires every company to submit the details of the Foreign Investment as per the format specified in Annexure A, and second part of the circular talks about the single master form as per the format specified in Annexure B, whereby various details about Foreign Investment transaction can be reported to the RBI from time to time.

PART 1 – SUBMISSION OF EXISTING DETAILS OF Foreign Investment: 1) Applicability: Before the implementation of SMF, all the Indian entities are required to submit the total existing foreign investment in format as specified in Annexure A. As per RBI circular, this interface would be made available for all the Indian entities between June 28, 2018 to July 12, 2018. -

However, there is no clarity on the applicability of this circular on the following Indian entities: Companies with no Foreign Investment since inception and Companies which had Foreign Investment, however as on date of RBI circular, there is no Foreign Investment The entire purpose of this circular is to ensure that the RBI will have all the information of Foreign Investment in Indian entities irrespective of whether the periodical reporting pertaining to receipt of share application money, allotment of shares towards receipt of share application money received, transfer of shares from NR to R or vice versa had been made to RBI. In case of failure on part of the Indian entities in non-filing of such reporting to RBI, then RBI might not have the details of total FDI in Indian market and hence, such circular was needed to understand the existing scenario.

2) Submission of Foreign Investment details as on which date? According to the RBI circular, the interface will be available from June 28, 2018 to July 12, 2018 on its website. Ambiguity also lies on submission of details, till when this detail required to be submitted with RBI. Since, there is no specification on due dates, and the purpose of submitting the details by Indian entities is to ensure the accurate details of Foreign investment in Indian entities are submitted, irrespective of whether Form ARF and Form FCGPR was submitted or not. Hence, it would be much more relevant for an Indian entity to submit the data as on date of this circular. Following are two scenarios on dates for submission of Foreign Investment details for better understanding, keeping in mind about due dates for submission of Foreign investment details i.e. June 28, 2018 to July 12, 2018: Scenario 1 - Details as on June 28, 2018: If there is no inward remittance been planned between June 28, 2018 to July 12, 2018, then it would be immaterial to decide on the timeline for submission of Foreign Investment. Due date of almost three weeks are allotted for Indian entities, is to ensure that the accurate details of Foreign Investments are provided to RBI in the prescribed format. Scenario 2 - Details as on July 12, 2018: If Indian entities had already planned for inward remittance and transaction of Foreign Investment was supposed to be done between June 28, 2018 to July 12, 2018, then it would be more relevant to submit the details of Foreign Investment near to last date for submission of Foreign Investment, i.e. July 12, 2018 and not as on start date of this interface i.e. June 28, 2018.

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RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

In any of such cases, RBI circular was issued on June 7, 2018 and the portal for submission of Foreign Investment will be made available for Indian entities between June 28, 2018 to July 12, 2018. Hence, ample of time was made available for Indian entities to ensure that details are extracted as per format been prescribed in ‘Annexure A’. 3) Non-Compliance of this circular? This circular is mandatory for all the Indian entities and it is not optional. It is pre-requisite for all the Indian entities to ensure the submission of the total existing Foreign Investment before implementation of SMF and hence, non-compliance towards submission of such details to RBI will be treated as non-compliant with the applicable provision of FEMA. Such non-compliance will debar Indian entities in default from accepting further Foreign Investment (including Indirect foreign investment). Hence, it is mandatory for all the Indian entities having Foreign Investment, to submit the requisite details as per format prescribed in Annexure A. Major impact of this circular will be on companies which are planning to get their shares listed on the exchange, as non-compliance of RBI circular will lead to debarment from accepting any further Foreign investment. Hence, any allotment of shares to NRI towards their bid in the upcoming Initial Public Offer shall stand cancel and hence, such portion of foreign shareholding allotment will be illegal. To be more precise, this circular will have major impact on such companies, as they might end up giving relevant disclosures in their draft prospectus about noncompliance of RBI circular and resulting into non-acceptance of further foreign investment in their company. 4) Why such requirement? Since inception of the regulations, Form ARF and Form FCGPR were required to be filed by Indian entities on accepting the FDI and allotment of shares towards such investment. All these forms were required to be submitted in physical format since inception and online submission of this forms were made mandatory few years back. Hence, it might be possible that certain details of FDI in Indian entities are not available on public records due to non-filing of the ARF and FCGPR. To ensure the appropriate details of FDI details with concerned department, and without undergoing for compounding of offence by the Indian entities for non-filing of Form ARF and Form FC-GPR, this would be welcome move for all those industries which were in default of reporting with RBI about FDI in their company.

PART 2 – REPORTING TO RBI IN SINGLE MASTER FORM: Second part of RBI circular deals with various reporting with RBI on various types of Foreign investment. Before implementation of SMF, Indian entities to input details of total Foreign Investment. At second phase of this circular, all the reporting of Foreign Investment to be done under one format. However, there are few grey areas which are highlighted below: 5) Requirement of Form ARF and Form FCGPR: Form ARF is required to be filed within 30 days from the date of foreign inward remittance, whereas Form FCGPR to be filed within 180 days from the date of allotment of securities towards foreign inward remittance. Hence, two different forms are required to be filed with RBI to complete the reporting process of Foreign Direct Investment received by Indian entities. Furthermore, separate Form ARF is required to be filed in case if inward remittance is received in multiple tranches towards same allotment, even if the share application money has been received on same date. Thus, both form ARF and form FCGPR is required to be filed with RBI for completing the reporting process of single tranche of investment. Both forms are interlinked and it is relevant to display the appropriate details of FDI. For e.g., if company had received Rs. 1 Lakh towards the share application money and the offer is under subscribed i.e. up to Rs. 80,000. Difference towards share application money and under subscription can be identified from ARF and Form FCGPR since Form ARF will be filed with details of share application money and details of allotment in Form FCGPR will

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RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

have amount of Rs. 80,000. Therefore, filing of both the forms is mandatory for ensuring the reporting to RBI about FDI in Indian entities. Even though both forms are interlinked, Form ARF does not form an integral part of SMF. Further, there is no clarity in RBI circular on continuation of filing of Form ARF with RBI for inward remittance. 6) Requirement of filing Annual Return on Foreign Liabilities and Assets (“FLA”)? There is no clarity for filing of FLA for Foreign Investment. FLA is statement based on foreign liabilities and foreign assets which accrued due to foreign investment on annual basis. Hence FLA is consolidated data based on previous financial year balances and incorporation of details of current financial year. Hence, whether SMF will subsume the requirement of FLA or not, there is lack of clarity on that part. Since, format of FLA does not form an integral part of SMF and there is no clarity of submission of FLA after implementation of SMF, hence it seems that submission of FLA will stay as it is, as the entire concept of FLA and SMF are different and main theme of SMF is to consolidate the reporting system with RBI on Foreign Investment, which may be construed on real time basis and not on annual consolidated basis. 7) Requirement of filing of all formats together? Single Master Form have prescribed with few of important reporting format which is required to be submitted by Indian entities whenever Indian entities receives any foreign investment or when there is transfer of such securities amongst Non-resident and resident holders. However, all of these formats have various due dates and these forms needs to submit with RBI for each of such transaction. Hence, there is no clarity on submission of SMF and due dates. For better understanding, requirement of SMF is explained with two scenarios: Scenario 1 - If SMF would be required to file on annual basis: In such case, there might be no longer requirement of filing FLA and hence, all the Foreign Investment carried out in Indian entities will be submitted on annual basis, same like as Annual Returns and annual reports which are required under Companies Act, 2013. All the transaction of foreign inward remittance and any transfer of securities will be reported to RBI on consolidated basis. This may even reduce the burden of following the endless compliance requirement. However, consolidated submission of SMF will also result in various amendments in FEMA regulations as various formats as prescribed in SMF have different due dates for its reporting to RBI. However, this will defeat the purpose of reporting of Foreign Investment on real time basis and what if at the start of Financial Year, there was no Foreign Investment in Indian entities, but Indian entities receive Foreign Investment in mid of FY and again such Foreign investment becomes nil at the close of Financial Year, then in such case, would there be any requirement for submission of SMF. Consolidated submission of SMF on annual basis, may somewhere will defeat the entire purpose of reporting Foreign Investment with RBI on few grounds as discussed. Scenario 2 – If SMF to be submitted on real time basis: In such cases, there would be problem again, as most of them are crucial format which has been prescribed in SMF, are either needs to be filed on allotment of securities towards foreign inwards remittance or on transfer of such securities amongst Non-resident and resident holders. Hence, submission of SMF on real time basis, will lead to submission of SMF on regular intervals based on the transaction take place in Indian entities for which we already had prescribed separate formats for all such transaction. If SMF is not required on regular intervals, then there are possibilities of due dates for all these transactions to undergo changes, in order to streamline the reporting requirement with RBI. 8) Onus on Practicing Company Secretaries? As discussed above in point no 4 in scenario 2, if SMF will be required on real time basis, then the onus on PCS / Company Secretary will increase to a great extent, as entire onus on correctness of SMF will be relied on such certification as required from PCS / CS. For this matter, for e.g. there was inward remittance towards equity

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RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

shares in Indian company for which SMF would be required to be filed, with details in Form FCGPR; for single format, PCS will need to certify the NIL details for rest of the formats, along with correctness of details, like Form FCTRS is required for transfer of such securities between NR and R and company will be filing SMF for allotment of securities in FCGPR section of SMF, then PCS / CS needs to ensure that details as “NIL” / “N.A.” mentioned under section of FCTRS is correct; hence for submission of one format under SMF, PCS / CS needs to ensure the authenticity of details incorporated in SMF for rest of the formats. This will build up responsibilities on PCS certifying such formats.

To conclude: Implementation of Single Master Form will lead to few more amendments in FEMA regulations for its successful implementation. Since part A of RBI circular wants each of the Indian entities to input details of existing Foreign Investment in Annexure A, this will lead to streamline in reporting procedure of Foreign Investment. Indian entities not complying with first part of RBI circular will be non-compliant with FEMA and they will be no longer permitted to receive Foreign Investment.

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RBI UPDATE – SINGLE MASTER FORM

CS ASHISH BAID (8097979445)

Disclaimer: This article is drafted with an intention of imparting knowledge of “Foreign Investment in India – Single Master Form”. This document is not meant to be reproduce in any publication. Users are strongly recommended to have their internal due diligence before referring the docket for their academic / business purpose. The views expressed in this document are the views based on internal research done by the author of this document and that author of this document is nowhere responsible direct or indirect for any loss or damage to any viewers. Special Thanks to the viewers for referring this docket for their ready reference and your valuable feedback(s) are welcomed in positive spirit. Further, to assure the viewers, 100% efforts are made to justify the topic in discussion and that entire docket is based on the internal research. This document does not give any authority / permission to any individual or institute to publish this article on their website / mobile app / google link for any sort of commercial or academic use without prior approval.

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Date

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June 20, 2018

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foreign investment - single master form -

Bank within 180 days from the date of allotment of securities. ... First part of this .... ARF and Form FC-GPR, this would be welcome move for all those industries ...

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