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Schedule A Demo

Downstream Investment and Form DI

What is Downstream Investment?

‘Downstream Investment’ means an investment made by an Indian entity or an Investment Vehicle in the capital instruments or the capital, as the case may be, of another Indian entity. The investment should be an indirect foreign investment in the investee company.

Regulations/Master Directions Applicable:

  • Foreign Exchange Management Act, 1999 
  • Master Direction – Foreign Investment in India
  • Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 
  • Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017
  • Foreign Exchange Management (Non-Debt Instruments) Rules, 2019
Conditions subject to which Downstream Investment should be made:
  1. The downstream investment should have the approval of the Board of Directors as also a Shareholders’ Agreement, if any;
  2. The Indian entity making the downstream investment shall bring in funds from abroad and not use funds borrowed in the domestic markets
  3. Downstream investments can be made through internal accruals. For this purpose, internal accruals will mean profits transferred to reserve account after payment of taxes.
  4. Raising of debt and its utilisation shall be in compliance with the Act, rules or regulations made thereunder.
  5. Capital instruments of a Company which is held by another company which is owned/ controlled by persons resident outside India and has received foreign investment may be transferred to:
      • Person resident outside India, subject to filing Form FC-TRS
      • A person resident in India subject to adherence to pricing guideline
      • An Indian company which has received foreign investment and is owned/ controlled by persons resident outside India
  1. The first level Indian company making downstream investment shall be responsible for ensuring compliance with the provisions of these regulations for the downstream investment made by it at second level and so on and so forth. Such first level company shall obtain a certificate to this effect from its statutory auditor on an annual basis. Such compliance of these regulations shall be mentioned in the Director’s report in the Annual Report of the Indian company. In case statutory auditor has given a qualified report, the same shall be immediately brought to the notice of the Regional Office of the Reserve Bank in whose jurisdiction the Registered Office of the company is located and shall also obtain acknowledgement from the RO.
  2. The provisions at (e) and (f) above shall be construed accordingly for an LLP.
  3. All investments to be made keeping in mind the permitted activities, permitted sectors, entry routes and sectoral caps for total foreign investment.

Due date of filing of Form DI:

 

An Indian company making downstream investment in another Indian company which is considered as indirect foreign investment for the investee company in terms of these Regulations, shall notify the Secretariat for Industrial Assistance, DIPP and file Form DI within 30 days of such investment and, even if capital instruments have not been allotted along with the modality of investment in new/existing ventures (with/without expansion programme);

 

An Indian entity or an investment Vehicle making downstream investment in another Indian entity which is considered as indirect foreign investment for the investee Indian entity shall file Form DI with the Reserve Bank within 30 days from the date of allotment of equity instruments.

Form DI Filing Process:

FIRMS is an online portal for reporting of foreign investment into India. It facilitates filing of Single Master Form (SMF) which provides for the reporting of 9 forms for foreign investment viz., FC-GPR, FC-TRS, LLP-I, LLP-II, CN, DRR, ESOP, DI and InVi. For filing of Form DI, following steps need to be taken:

  1. Business User Registration (BU) – A BU is an applicant who reports the transaction in Single Master Form in FIRMS. A BU can use his login credentials only for the entity that has authorized him/her to report the transactions 
  2. e-KYC – Every business user has to be e-KYC verified before any reporting can be made in the Single Master Form 
  3. Know Your Customer (KYC) – For the remittance received from the non-resident investor, the KYC of the same is to be provided along with the forms in SMF as and where applicable and indicated. 
  4. Logging into SMF at FIRMS Portal – Login into SMF and reach your workspace and select Form DI and click on Add New Return. The user will be taken to form DI.
  5. Fill in the common Investment details, ESOP details, DI details, shareholding pattern and click on save and submit for submitting the form.

Documents to be attached with Form DI: 

  1. PAS – 3/SH-4/ Board resolution 
  2. Shareholder’s Resolution, if any 
  3. Valuation Certificate. 
  4. Declaration to be filed by the authorised representative of unlisted Indian company: As per the format at Annex V in FIRMS User Manual.

Late Submission Fee (LSF) Matrix for Reporting Delays, wherever applicable:

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.

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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