Regulatory Update on Single Master Form (SMF) under FEMA with Annexures & User Manual By CS Sanjeev Shah



INTRODUCTION
 
In its first bi-monthly monetary policy review dated 5th April, 2018, the Reserve Bank of India (RBI) had announced that it would introduce a Single Master Form (SMF) to consolidate the extant reporting of various types of foreign investment in India.
 
In line with the above, RBI has issued a Circular viz. A.P (DIR Series) Circular No.30 dated 7th June, 2018 to lay down the roadmap for implementation of the reporting of foreign investments through SMF.
 
KEY HIGHLIGHTS OF THE CIRCULAR
 
  • SMF would provide a facility for reporting total foreign investment by a non-resident in an Indian entity viz. Company, LLP and other investment vehicles viz. Real Estate Investment Trusts (REITs) / Infrastructure Investment Trusts (InvIts) / Alternative Investment Funds (AIFs).
  • However, prior to the implementation of SMF, RBI will provide an online interface to Indian Companies and LLPs that have existing foreign investments, to input data on total foreign investments received in a prescribed Entity Master Form (EMF). The said online interface for this onetime reporting will be available on the RBI website rbi.org.in for a period of 15 days from 28-June-2018 to 12-July-2018.
  • Indian entities which do not comply with this prerequisite will not be able to receive foreign investment (including indirect foreign investment) and will be considered as non-compliant under FEMA, 1999 and regulations made thereunder.
  • In order to comply with the timeframe, the RBI has provided an EMF as Annex 1 to the circular, which provides the information to be uploaded on the interface during the aforesaid specified period.
  • SMF would subsume the existing forms for reporting of foreign investment viz. FC-GPR, FC-TRS, LLP-I & II, ESOP, CN, DR and would require additional for two additional reporting viz. Form DI (Reporting of downstream investment (indirect foreign investment) in a company or LLP within 30 days from the date of allotment) and Form InVi (Reporting of investment by a person resident outside India in an investment vehicle). The format of SMF provided as Annex 2 to the circular.
  • Certain requirements have been made common to all types of reporting, including Certificate from a Company Secretary / Practicing Company Secretary (which is currently required only in the case of Form FCGPR) and declaration by non-resident transferor/ transferee (currently prescribed only for Form FC-TRS). However, certain additional details which are not forming part of the current forms are required to be reported in SMF.
They are –

  • In case of reporting of fresh issue of shares, details of the amount received in tranches for the issue of partly paid-up shares/ share warrants is to be provided;
  • In case of reporting the transfer of shares, relevant extracts of the transfer agreement to be enclosed;
  • In case of reporting the transfer of shares with payment by way of deferred consideration, details of tranches, escrow arrangement and indemnity arrangement;
  • In case of reporting the transfer of capital instruments from non-resident to resident, the acknowledgement letter for initial investment by a non-resident is required to be enclosed;
  • In case of reporting of convertible notes, details of repayment, conversion and transfer of convertible notes are required to be mentioned and for transfer of convertible notes from non-resident to resident, the acknowledgement letter for initial investment by non-resident is required to be enclosed.
CONCLUSION
 
SMF for reporting of various types of foreign investments in India is a welcome move by the RBI to simplify and rationalise reporting for foreign investment in India. SMF Circular is a tip of the iceberg that will be unveiled in the days to come. However, there may be certain practical challenges and difficulties prior to implementation of the new form for the Indian entities to collate details on foreign investment, especially when the window for uploading such data on the RBI interface is open only for 15 days.

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