In this article, Siddheswari Ranawat who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses the reporting requirements for investors under FEMA. 

Introduction

FEMA regulates all the foreign exchange related matters. The 1999 Act was enacted with a purpose of amending and consolidating all the foreign exchange related laws. So it would facilitate the Foreign Trade and be beneficial to the Indian Economy the 1991 Liberalisation, Privatisation and Globalisation policy could be a motivating factor behind the Government’s step to facilitate foreign trade. The Act deals with regulation and management of foreign exchange by dealing and holding foreign exchange and with export-import of goods and services and so on. It also sheds light upon authorized persons and their roles and also if the provisions of the act are not complied with then it also discusses the contraventions and penalties. It specifically also conveys the jurisdiction of specific court for the matters relating to foreign exchange that does not come under the jurisdiction of civil courts as mentioned under Sec. 34. There are 49 sections in the act it also discusses about the directorate of enforcement and other miscellaneous matters relating to the foreign exchange. [1]

Introduction to reporting requirements

Necessary information required by a governmental body, organization, or employer and is often required within a certain period of time and within a specific format that is known as reporting requirements.[2] Reporting requirements in simpler terms mean a set of facts or information needed for completion of a task in a specified period of time or format. Reporting requirements are very particularly fixated over a theme or topic. There are no specific provisions in FEMA[3] regarding reporting requirements in particular. The FEMA provisions do not directly address the requirements in the Act. There are different reporting requirements for different foreign exchange related matters.

Master directions issued by the RBI

The issue started from January, 2016 on different regulatory matters. [4]: The Master Directions consolidate instructions on rules and regulations framed by the Reserve Bank under various Acts including banking issues and foreign exchange transactions. The process of issuing Master Directions involves issuing one Master Direction for each subject matter covering all instructions on that subject.[5] The medium of press release or circulars are used keep the directions updated with the new changes that take place from time to time.

The master direction has been totally amended and includes different subjects like the Part I talks about the Remittance Facilities, Part II about Liberalized Remittance Scheme, Part III discusses the LO/BO/PO[6] related matters, Part IV about Foreign Investment, Part V about ECB(External Commercial Borrowing), Part VI about Non-resident foreign accounts, Part VII about immovable property, Part VIII about Overseas Direct Investment, Part IX about Trade, Part X about Guarantees and Part XI about the cell effective implementation of FEMA (CEFA)- Compounding. The amendments were made in the direction in the year 2016.[7]

Reporting requirements are specific under the following heads

Indian companies are allowed to access funds from abroad through the below-mentioned methods, (i) External Commercial Borrowings (ECB) (ii) Foreign Currency Convertible Bonds (FCCBs) (iii) Preference shares (iv) Foreign Currency Exchangeable Bonds (FCEBs)

ECB can be accessed under two routes, viz., (i) Automatic Route and (ii) Approval Route.[8]

Borrowings under ECB Framework are subject to reporting requirements in respect of the following

Loan Registration Number (LRN): Any draw-down in respect of an ECB as well as payment of any fees / charges for raising an ECB should happen only after obtaining the LRN from RBI.

Changes in terms and conditions of ECB: All the permitted changes in ECB parameters should be revised with form available at the earliest possible opportunity and it should under no circumstances exceed 7 days from the date of the changes

Reporting of actual transactions: The requirements relating to the borrowers is  that they are required to report actual ECB transactions on monthly a basis within the time span of 7 days and the Part V of Master Directions – Reporting under Foreign Exchange Management Act discusses the format of it.

Reporting on account of conversion of ECB into equity: In a situation where partial or full conversion of ECB into equity is done, the reporting to the RBI will have different stipulations as given under the act.

Trade Credit transactions are subject to the following reporting requirements

Monthly reporting: As the name suggests the report is to be given to the authorities on the monthly basis. The Format of Form is available at Annex IV of Part V of Master Directions – Reporting under Foreign Exchange Management Act. Details like approvals, drawal, utilisation, and repayment of Trade Credit approved by all its branches, in a consolidated statement, during a month are required. Each trade credit may be given a unique identification number by the Authorized dealer bank.

Quarterly reporting: this report is to be submitted to the authorities on quarterly basis. Details like issuance of guarantees / Letters of Undertaking / Letter of Comfort by all its branches, in a consolidated statement, at quarterly intervals are required. It should reach to the authorized within the first ten days of the month. The format of this statement is available at Annex V of Part V of Master Directions – Reporting under Foreign Exchange Management Act.[9]

The establishment of BO (Branch Office)/LO (Liaison Office)/PO (Project Office) is subject to certain reporting requirements which are as follows:

The Annual Activity Certificate (AAC) (Annex I) as at the end of March 31 along with the audited financial statements including receipt and payment account are required to be submitted to the designated and authorized authorities before September 30 of every year. In case the annual accounts of the BO/LO are finalized with reference to a date other than March 31, the AAC along with the audited financial statements may be submitted within six months from the due date of the Balance Sheet to required authorities.

AD Category-I bank shall send a consolidated list of all the BOs/LOs/ POs opened and closed by them during a month (as per Annex II), by the fifth of the succeeding month.

Entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan which are setting up a BO/LO/PO in India should register with the state police authorities and are required to submit an annual report (as per Annex III) within five working days of the BO/LO/PO becoming functional to the Director General of Police (DGP) of the state concerned in which the BO/LO/PO has established its office; If there is more than one office of such a foreign entity, a separate annual report is required to be submitted to each of the DGP concerned of the state where the office has been established.

Limited liability partnership is subject to the following reporting requirements

Limited Liability Partnerships (LLPs) receiving amount of consideration for capital contribution and acquisition of profit shares is required to submit a report in Form Foreign Direct Investment-LLP through its Authorized Dealer Category – I bank, to the Regional Office of the Reserve Bank under whose jurisdiction the Registered Office of the Limited Liability Partnership making the declaration is situated, within 30 days from the date of receipt of the amount of consideration. The form should be accompanied by certain documents which would allot a Unique Identification Number (UIN). The LLPs should report disinvestment / transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) under the time limit of 60 days from the date of receipt of funds in Form Foreign Direct Investment LLP. All LLPs in India which have received FDI and/or made FDI abroad in the previous year(s) as well as in the current year, should file the annual return on Foreign Liabilities by the 15 of July of every year. Since LLPs do not have 21- Digit CIN (Corporate Identity Number), they are advised to enter other set of digits. The RBI stipulates different formats and specifications which can be found on their official website.[10]

In conclusion we have these specifications as stipulated by the master directions given by the RBI with the FEMA’s authority involved in and they are to be followed by the investors and their non fulfillment may lead to fine or punishment both as stipulated by the act. Considering that our country had learned its lesson with the 200 year rule by the UK and was rather a little hesitant in allowing foreign trade but the circumstances have changed and now we have all the laws and regulations to keep the exchange and trade in control. Foreign investment in general terms a very long and hectic process considering the fulfillment of laws that are to be taken care of and the reporting requirements are just one of those laws or rather stipulation whose fulfillment is absolutely necessary for the smooth working and investing by the potential or current investors in our country.[11]

References

[1]http://lawmin.nic.in/ld/P-ACT/1999/The%20Foreign%20Exchange%20Management%20Act,%201999.pdf (Accessed on 30^th March, 2017 at 6:58 PM).

[2] http://www.businessdictionary.com/definition/reporting-requirements.html. (Accessed on 30th March at 7:14 PM).

[3] The Foreign Exchange Management Act, 1999.

[4] Reserve Bank of India.

[5] https://rbi.org.in/scripts/BS_ViewMasterDirections.aspx?id=10204 (Accessed on 30^th March, at 6:12 PM).

[6] Stands for Branch Office, Liaison Office and Project Office.

[7] The parts of the direction are the same as given under the official master direction issued by the RBI.

[8] https://rbidocs.rbi.org.in/rdocs/content/pdfs/13MDR291215.pdf (Accessed on 30th march, 2017 at 7:48 PM).

[9] https://rbi.org.in/scripts/BS_ViewMasterDirections.aspx?id=10204

[10] https://rbidocs.rbi.org.in/rdocs/content/pdfs/13MDR291215.pdf (Accessed on 30th March, 2017 at 8:28 PM).

[11] The provisions mentioned in the article are not with an intention of plagiarism but they are the straight provisions as given under the act and cannot be changed by the author.