Form FC (Form – Financial Commitment)

What is Form FC?

In Form FC, information relating to financial commitment including ODI, restructuring and disinvestment by Indian entities (as defined under the OI Rules) and resident individuals, as applicable is furnished to RBI.

Regulations/Master Directions Applicable:

Foreign Exchange Management Act, 1999 

Foreign Exchange Management (Overseas Investment) Rules, 2022

Foreign Exchange Management (Overseas Investment) Regulations, 2022.

Foreign Exchange Management (Overseas Investment) Directions, 2022

What is financial commitment?

 ‘Financial commitment ‘is defined in Foreign Exchange Management (Overseas Investment) Rules, 2022 as follows: –

“Financial commitment” means the aggregate amount of investment made by a person resident in India by way of Overseas Direct Investment, debt other than Overseas Portfolio Investment in a foreign entity or entities in which the Overseas Direct Investment is made and shall include the non-fund-based facilities extended by such person to or on behalf of such foreign entity or entities.

Kinds of Financial Commitment:

Foreign Exchange Management (Overseas Investment) Regulations, 2022 provides for the various kinds of financial commitment:

  • Financial commitment by way of equity
  • Financial commitment by Indian entity by modes other than equity capital (Regulation 3)
  • Financial commitment by Indian entity by way of debt (Regulation 4)
  • Financial commitment by way of guarantee (Regulation 5)
  • Financial commitment by way of pledge or charge (Regulation 6)
  • Acquisition or transfer by way of deferred payment (Regulation 7)

Obligations of person resident in India

  • A person resident in India making ODI is required to submit AD Bank, share certificates or any other documents, being evidence of investment in foreign entity within six months from the date of remittance or the date on which the dues to such person are capitalised or the date on which the amount due was allowed to be capitalised, as the case may be
  • A person resident in India should obtain a Unique Identification No. for the foreign entity in which ODI is to be made, before sending remittance or acquisition of equity
  • A person resident in India making ODI shall designate an AD bank and route all transactions relating to a particular UIN through such AD
  • A person resident in India having ODI in a foreign entity shall repatriate to India all dues receivable from it w.r.t such investment/ consideration received for disinvestment/net realisable value of the assets on account of the liquidation of the foreign entity within ninety days from the date when such receivables fall due or the date of such transfer or disinvestment or the date of the actual distribution of assets made by the official liquidator.

Reporting requirements for Overseas Investment:

  1. All reporting by a person resident in India who has made ODI /making financial commitment / undertaking disinvestment in a foreign entity shall be made through designated AD Bank to RBI in Form FC. Due Date for furnishing Form FC is:
      • In case of Financial Commitment – at the time of sending outward remittance or making a financial commitment, whichever is earlier;
      • In case of disinvestment within thirty days of receipt of disinvestment proceeds;
      • In case of restructuring within thirty days from the date of such restructuring.
  2. A person resident in India other than a resident individual making any Overseas Portfolio Investment (OPI) or transferring such OPI by way of sale shall report such investment or transfer of investment within sixty days from the end of the half-year in which such investment or transfer is made as of September or March-end.

Provided that in case of OPI by way of acquisition of shares or interest under Employee Stock Ownership Plan or Employee Benefits Scheme, the reporting shall be done by the office in India or branch of an overseas entity or a subsidiary in India of an overseas entity or the Indian entity in which the overseas entity has direct or indirect equity holding where the resident individual is an employee or director.

 

  1. A person making an ODI shall submit an Annual Performance Report (APR) with respect to each foreign entity every year by 31st December.

No reporting is required where:

    • a person resident in India is holding less than 10 per cent. of the equity capital without control in the foreign entity and there is no other financial commitment other than by way of equity capital; or
    • a foreign entity is under liquidation.
  1. An Indian entity which has made ODI shall submit an Annual Return on Foreign Liabilities and Assets with RBI.

Overseas investment to be made in bonafide business activity.

Rule 9 of Foreign Exchange Management (Overseas Investment) Rules, 2022 provides that Overseas investment must be made in a foreign entity which is engaged in a bonafide business activity. Investment can be made directly or through step down subsidiary or the special-purpose vehicle. Provided that ODI in a Company incorporated in Pakistan or any other jurisdiction shall require prior approval of the Central Government.

Requirement of obtaining a ‘No Objection Certificate’.

Rule 10 of Foreign Exchange Management (Overseas Investment) Rules, 2022 provides that:

Any person resident in India who – 

  1. has an account appearing as a non-performing asset; or 
  2. is classified as a wilful defaulter by any bank; or
  3. is under investigation by a financial service regulator or by investigative agencies in India, namely, the Central Bureau of Investigation or Directorate of Enforcement or Serious Frauds Investigation Office

shall, before making any financial commitment or undertaking disinvestment obtain a No Objection Certificate from the lender bank or regulatory body or investigative agency by making an application.

Provided that where the lender bank or regulatory body or investigative agency concerned fails to furnish the certificate within sixty days from the date of receipt of such application, it may be presumed that there was no objection to the proposed transaction.

Specified procedures:

  • Manner of making Overseas Direct Investment by Indian entity is provided in Schedule I of Foreign Exchange Management (Overseas Investment) Rules, 2022 (Rule 11)
  • Manner of making Overseas Portfolio Investment by an Indian entity is provided in Schedule II of Foreign Exchange Management (Overseas Investment) Rules, 2022 (Rule 12)
  • Manner of making Overseas Investment by resident individual is provided in Schedule III of Foreign Exchange Management (Overseas Investment) Rules, 2022 (Rule 13)
  • Overseas Investment by person resident in India other than Indian entity and resident Individual is provided in Schedule IV of Foreign Exchange Management (Overseas Investment) Rules, 2022 (Rule 14)
  • Overseas Investment in IFSC by person resident in India is provided in Schedule V of Foreign Exchange Management (Overseas Investment) Rules, 2022 (Rule 15)

Pricing guidelines

  1. Unless otherwise provided in these rules, the issue or transfer of equity capital of a foreign entity from a person resident outside India or a person resident in India to a person resident in India who is eligible to make such investment or from a person resident in India to a person resident outside India shall be subject to a price arrived on an arm’s length basis. 
  2. The AD bank, before facilitating a transaction under sub-rule (1), shall ensure compliance with arm’s length pricing taking into consideration the valuation as per any internationally accepted pricing methodology for valuation.

Non-applicability of Foreign Exchange Management (Overseas Investment) Rules, 2022

 

Foreign Exchange Management (Overseas Investment) Rules, 2022 are not applicable in the following cases:

(a) any investment made outside India by a financial institution in an IFSC; 

(b) acquisition or transfer of any investment outside India made, –

  • out of Resident Foreign Currency Account; or 
  • out of foreign currency resources held outside India by a person who is employed in India for a specific duration irrespective of length thereof or for a specific job or assignment, duration of which does not exceed three years; or 
  • in accordance with sub-section (4) of section 6 of the Act.

Penalty for Late Submission of Form FC (Form – Financial Commitment):

Notes: 

  1. “n” is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points. 
  2. “A” is the amount involved in the delayed reporting.
  3. LSF amount is per return.
  4. Maximum LSF amount will be limited to 100 per cent of ‘A’ and will be rounded upwards to the nearest hundred.
  5. In case a person responsible for any submission or filing under the provisions of FEMA, neither makes such submission/filing within the specified time nor makes such submission/filing along with LSF, such person shall be liable for penal action under the provisions of FEMA, 1999.

Restriction on further financial commitment or transfer:

 

Where a person has made financial commitment in a foreign entity and there is a delay in reporting Form FC, then he cannot make further commitment or transfer in the same entity until such delay in reporting is regularised.

Disclaimer: The information contained in this Article is intended solely for personal non-commercial use of the user who accepts full responsibility of its use. The information in the article is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. We make no representation or warranty of any kind, express or implied regarding the accuracy, adequacy, reliability or completeness of any information on our page/article. 

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