MCA has been striking off companies for not filing its annual returns and annual financial statements for a period of 3 years consecutively. Also lately it has been issuing show cause notices to companies who have not done any business for the last two years, to strike their names off from the register of companies. While there is a provision in the companies act, 2013 in section 248 for issuing of such show cause notices, the moot question to ask is whether it is just to send show cause notices to companies just because they have no business income for the last 2 years. According to me it is grossly unfair because businesses have upturns and downturns and when there is downturn, it could last lot more years, sometimes half a decade also. When there is general recession, then businesses fail, like in the real estate industry there is a recession for so many years. Shipping industry has its worst over woes for nearly a decade or so. Businesses suffered huge setback due to the ill advised demonetisation and there was disruption in the business due to the GST rollout. Plus industry itself goes through one crises after another, there could be technological changes taking place rapidly, disruption etc. which could all affect the business in one way or another. Industries are starved of bank funds due to which they are unable to do capex or even meet working capital requirements. Therefore in light of the above, what is the justification for issuing strike off show cause notices to companies just because they have no business income for two consecutive years. Especially when the companies have been doing the compliance all properly all along - appointing auditors, filing the statutory annual forms and event based forms etc.
Thursday, September 20, 2018
LLP registration
MCA has vide its notification dated 18th September, 2018 streamlined the process of incorporation of Limited Liability Partnerships (LLP) in India. Hitherto, for more than 10 months, the LLP incorporation had come to a standstill as MCA had stopped issuing stand-alone Director Identification Number (DIN) to individuals.
1) Now name reservation for a LLP can be done by a web service called LLP-RUN. Unfortunate part is that this RUN will be governed by their Central Reservation Centre (CRC) which is a retrograde step, in my view. That section is manned by totally incompetent people who have no idea at all about business incorporation.
2) Form 2 for incorporation of LLP will be replaced by FiLLiP which will carry the DIN allotment process also. So this is good move.
3) Similarly minor amendments have been made to Addendum to Form 2 (which will be known as Addendum to Form FiLLiP, form 5 (notice for change of name), form 17 (conversion of general partnership firm into LLP) and form 18 (conversion of a private company/ unlisted public company into LLP) consequent to the above amendments. It would be interesting to note form 18 amendments as with the proposed mandatory demat of securities of unlisted public limited companies from 2nd October onwards, many unlisted public companies will seek to convert themselves into LLPs / private companies to avoid that compliance. They might seek to convert themselves into private companies but there is always a lurking fear the mandatory demat of securities could be extended to private companies as well, in the future.
All these changes will take effect from 2nd October, 2018.
1) Now name reservation for a LLP can be done by a web service called LLP-RUN. Unfortunate part is that this RUN will be governed by their Central Reservation Centre (CRC) which is a retrograde step, in my view. That section is manned by totally incompetent people who have no idea at all about business incorporation.
2) Form 2 for incorporation of LLP will be replaced by FiLLiP which will carry the DIN allotment process also. So this is good move.
3) Similarly minor amendments have been made to Addendum to Form 2 (which will be known as Addendum to Form FiLLiP, form 5 (notice for change of name), form 17 (conversion of general partnership firm into LLP) and form 18 (conversion of a private company/ unlisted public company into LLP) consequent to the above amendments. It would be interesting to note form 18 amendments as with the proposed mandatory demat of securities of unlisted public limited companies from 2nd October onwards, many unlisted public companies will seek to convert themselves into LLPs / private companies to avoid that compliance. They might seek to convert themselves into private companies but there is always a lurking fear the mandatory demat of securities could be extended to private companies as well, in the future.
All these changes will take effect from 2nd October, 2018.
Sunday, July 8, 2018
Registration of satisfaction of charges
MCA has vide its notification dated 5th July, 2018 amended the Companies (Registration of Charges), Rules, 2014 wherein it has now allowed the satisfaction of charges to be filed within a period of 300 days from the date of satisfaction/ date of payment.
Hitherto, this period was 30 days from the date of satisfaction and if filed beyond that date, then company had to approach the Regional Director with an application for condonation of delay beyond 30 days, pay fine related to that in the RD order and then the satisfaction would take effect.
Of course, any filing beyond 30 days from the date of satisfaction would attract the additional filing fee as specified in the relevant Rules.
This is a good move by the government as an Ease of Doing Business.
Hitherto, this period was 30 days from the date of satisfaction and if filed beyond that date, then company had to approach the Regional Director with an application for condonation of delay beyond 30 days, pay fine related to that in the RD order and then the satisfaction would take effect.
Of course, any filing beyond 30 days from the date of satisfaction would attract the additional filing fee as specified in the relevant Rules.
This is a good move by the government as an Ease of Doing Business.
Saturday, July 7, 2018
annual KYC by all Directors
MCA has vide its notification dated 5th July, 2018 amended the Companies (Appointment and Qualification of Directors) Rules, 2014 wherein it has added a Rule 11(2) which gives powers to the Central Government or Regional Director (Northern region) to deactivate the DIN of any individual who does not file the newly created form DIR-3-KYC within the stipulated time.
The de-activated DIN can be activated only after the form DIR-3-KYC is filed along with the requisite fee as prescribed.
A Rule 12A has been added which provides that every individual who has been allotted a DIN as on 31st March of a financial year shall submit form DIR-3-KYC within 30th April of the immediate next financial year.
In the interim for the first year, all those individuals who are allotted a DIN shall file DIR-3-KYC within 31st August, 2018
The form DIR-3-KYC is given in the amendment, but not released yet. On a cursory glance at the form, it requires personal mobile no. and personal e-mail id of the Director to be indicated. The documents required are proof of identity and proof of residence. Not sure whether any specific proof is required for the mobile no. or e-mail id. That will be know only when the form is released and we go through the help file of the form.
This amendment has been made effective from 10th July, 2018 so the form DIR-3-KYC will also be released on that date at the MCA portal.
The de-activated DIN can be activated only after the form DIR-3-KYC is filed along with the requisite fee as prescribed.
A Rule 12A has been added which provides that every individual who has been allotted a DIN as on 31st March of a financial year shall submit form DIR-3-KYC within 30th April of the immediate next financial year.
In the interim for the first year, all those individuals who are allotted a DIN shall file DIR-3-KYC within 31st August, 2018
The form DIR-3-KYC is given in the amendment, but not released yet. On a cursory glance at the form, it requires personal mobile no. and personal e-mail id of the Director to be indicated. The documents required are proof of identity and proof of residence. Not sure whether any specific proof is required for the mobile no. or e-mail id. That will be know only when the form is released and we go through the help file of the form.
This amendment has been made effective from 10th July, 2018 so the form DIR-3-KYC will also be released on that date at the MCA portal.
Monday, July 2, 2018
RBI - FIRMS
RBI has vide its circular dated 27th june, 2018 introduced a concept of Single Master Form for reporting of all foreign investments into India. As a first step entities who have foreign investments have to create an entity master in an online interface called FIRMS.
Gist of RBI circular given below:
Gist of RBI circular given below:
In order to implement this announcement, the Reserve Bank is introducing an online application, FIRMS (Foreign Investment Reporting and Management System), which would provide for the SMF. FIRMS would be made online in two phases. In the first phase, the first module viz., the Entity Master, would be made available online. Instructions in this regard were already issued through A. P. Dir. Series Circular No. 30 dated June 07, 2018.
1.3 In the second phase, the second module containing 9 reports would be made available with effect from August 01, 2018. With the implementation of SMF, the reporting of FDI, which is presently a two-step procedure viz., ARF and FC-GPR would be merged into a single revised FC-GPR. The SMF also introduces reporting of indirect foreign investment through form DI and reporting of inflows in investment vehicles through Form InVi. Further, the reporting in FC-TRS, LLP-I, LLP-II, ESOP, DRR and CN would also be made in SMF only. The finalized structure of SMF and operational instructions thereof would be made available in the Master Direction on Reporting under FEMA, 1999.
1.4 The first module will be available to the public for data entry between June 28 (at 1:00 pm) and July 12, 2018. It would provide an interface for Indian entities [as defined in Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2017 dated November 07, 2017 and as amended from time to time] to input their existing foreign investment (including indirect foreign investment) data. Entities shall provide data with respect to all foreign investments received, irrespective of the fact that the regulatory reporting to the Reserve Bank for the same has been made or not and whether the same has been acknowledged or not.
1.5 Indian entities not complying with these instructions will not be able to receive foreign investment (including indirect foreign investment) and will be treated as non-compliant with Foreign Exchange Management Act, 1999 (FEMA) and regulations made thereunder and liable for action as laid in FEMA or the regulations made thereunder.
Detailed instructions for creating a entity master are given in the circular as per link below. The entity master needs to be created on or before July 12, 2018.
https://rbi.org.in/Scripts/femaview.aspx?femaid=64
Friday, June 29, 2018
KYC of all Directors
Important update from MCA - KYC of all Directors
Posted on MCA website today.
As part of updating its registry, MCA would be conducting KYC of all Directors of all companies annually through a new eform viz. DIR-3 KYC
to be notified and deployed shortly. Accordingly, every Director who has been allotted DIN on or before 31st March, 2018 and whose DIN is in ‘Approved’ status, would be mandatorily required to file form DIR-3 KYC
on or before 31st August,2018. While filing the form,the Unique Personal Mobile Number and Personal Email ID would have to be mandatorily indicated and would be duly verified by One Time Password(OTP). The form should be filed by every Director using his own DSC and should be duly certified by a practicing professional (CA/CS/CMA). Filing of DIR-3 KYC would be mandatory for Disqualified Directors also.
After expiry of the due date by which the KYC form is to be filed,the MCA21 system will mark all approved DINs (allotted on or before 31st March 2018) against which DIR-3 KYC form has not been filed as ‘Deactivated’ with reason as ‘Non-filing of DIR-3 KYC’. After the due date filing of DIR-3 KYC in respect of such deactivated DINs shall be allowed upon payment of a specified fee only, without prejudice to any other action that may be taken
Posted on MCA website today.
As part of updating its registry, MCA would be conducting KYC of all Directors of all companies annually through a new eform viz. DIR-3 KYC
to be notified and deployed shortly. Accordingly, every Director who has been allotted DIN on or before 31st March, 2018 and whose DIN is in ‘Approved’ status, would be mandatorily required to file form DIR-3 KYC
on or before 31st August,2018. While filing the form,the Unique Personal Mobile Number and Personal Email ID would have to be mandatorily indicated and would be duly verified by One Time Password(OTP). The form should be filed by every Director using his own DSC and should be duly certified by a practicing professional (CA/CS/CMA). Filing of DIR-3 KYC would be mandatory for Disqualified Directors also.
After expiry of the due date by which the KYC form is to be filed,the MCA21 system will mark all approved DINs (allotted on or before 31st March 2018) against which DIR-3 KYC form has not been filed as ‘Deactivated’ with reason as ‘Non-filing of DIR-3 KYC’. After the due date filing of DIR-3 KYC in respect of such deactivated DINs shall be allowed upon payment of a specified fee only, without prejudice to any other action that may be taken
Thursday, June 28, 2018
Monitoring of foreign investment limits in listed Indian companies
SEBI circular dated April, 5, 2018 follows:
1. Foreign Investment in India is regulated in terms of clause (b) of sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017. FEMA prescribes the various foreign investment limits in listed Indian companies. These include the aggregate FPI limit, the aggregate NRI limit and the sectoral cap. The RBI Master Direction (FED Master Direction No. 11/2017-18) dated January 04, 2018 provides a compilation of the instructions issued on Foreign Investment in India and its related aspects under FEMA.
2. As per FEMA, the onus of compliance with the various foreign investment limits rests on the Indian company. In order to facilitate the listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI has decided to put in place a new system for monitoring the foreign investment limits. The architecture of the new system has been explained in Annexure A.
3. The depositories (NSDL and CDSL) shall put in place the necessary infrastructure and IT systems for operationalizing the monitoring mechanism described at Annexure A. The Stock Exchanges (BSE, NSE and MSEI) shall also put in place the necessary infrastructure and IT systems for disseminating information on the available investment headroom in respect of listed Indian companies.
4. The depositories shall issue the necessary circulars and guidelines for collecting data on foreign investment from listed companies. The system for collecting this data from the companies shall go live on the date of the issuance of this circular. The companies shall provide the necessary data (details of which have been mentioned in Annexure A) to the depositories latest by May 15, 2018 (amended vide SEBI circular dated 27th April, 2018).
5. The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 18, 2018 (amended vide SEBI circular dated 27th April, 2018). The existing mechanism for monitoring the foreign investment limits shall be done away with once the new system is operationalized. RBI shall issue the necessary guidelines in this regard.
Annexure A
Architecture of the System for Monitoring Foreign Investment Limits in listed Indian companies
Housing of the System
1. The system for monitoring the foreign investment limits in listed Indian companies shall be implemented and housed at the depositories (NSDL and CDSL).
Designated Depository
2. A Designated Depository is a depository which has been appointed by an Indian company to facilitate the monitoring of the foreign investment limits of that company. As defined at Regulation 2(xxiii) of FEMA, the term ‘Indian company’ means a company incorporated in India and registered under the Companies Act, 2013.
3. The Designated Depository shall act as a lead depository and the other depository shall act as a feed depository.
Company Master
4. The company shall appoint any one depository as its Designated Depository for the purpose of monitoring the foreign investment limit.
5. The stock exchanges (BSE, NSE and MSEI) shall provide the data on the paid-up equity capital of an Indian company to its Designated Depository. This data shall include the paid-up equity capital of the company on a fully diluted basis. As defined at Regulation 2(xvii) of FEMA, the term “fully diluted basis” means the total number of shares that would be outstanding if all possible sources of conversion are exercised.
6. The depositories shall provide an interface wherein the company shall provide the following information to its Designated Depository:
i. Company Identification Number (CIN)
ii. Name
iii. Date of incorporation
iv. PAN number
v. Applicable Sector
vi. Applicable Sectoral Cap
vii. Permissible Aggregate Limit for investment by FPIs
viii. Permissible Aggregate Limit for investment by NRIs
ix. Details of shares held by FPI, NRIs and other foreign investors, on repatriable basis, in demat as well as in physical form
x. Details of indirect foreign investment which are held in both demat and physical form
xi. Details of demat accounts of Indian companies making indirect foreign investment in the capital of the company
xii. Whether the Indian company that has total foreign investment in it , is either not owned and not controlled by resident Indian Citizens or is owned or controlled by person’s resident outside India (Yes or No)
xiii. ISIN-wise details of the downstream investment in other Indian companies
The information provided by the companies shall be stored in a Company Master database. The Designated Depository, if required, may seek additional information from the company for the purpose of monitoring the foreign investment limits. The companies shall ensure that in case of any corporate action, the necessary modification is reflected immediately in the Company Master database.
7. In the event of any change in any of the details pertaining to the company, such as increase/decrease of the aggregate FPI/NRI limits or the sectoral cap or a change of the sector of the company, etc. the company shall inform such changes along with the supporting documentation to its Designated Depository. Such documentation may include:
i. Board of Directors resolution approving the increase/decrease
ii. General body resolution approving the increase/decrease
iii. Company Secretary certificate for compliance with FEMA, 1999
Reporting of trades
8. At present, as per SEBI guidelines, the custodians are reporting confirmed trades of their FPI clients to the depositories on a T+1 basis. This reporting shall continue and the data shall be the basis of calculating FPI investments/holding in Indian companies.
9. With respect to NRI (repatriable) trades, Authorized Dealer (AD) Banks shall report the transactions of their NRI clients to the depositories. The AD Banks shall be guided by the circulars issued by RBI in this regard.
Activation of a Red Flag Alert
10. The monitoring of the foreign investment limits shall be based on the paid-up equity capital of the company on a fully diluted basis to ensure that all foreign investments are in compliance with the foreign investment limits. 11. A red flag shall be activated whenever the foreign investment within 3% or less than 3% of the aggregate NRI/FPI limits or the sectoral cap. This shall be done as follows :
Aggregate NRI investment limit in the company
11.1. The system shall calculate the percentage of NRI holdings in the company and the investment headroom available as at the end of the day with respect to the aggregate NRI investment limit
11.2. If the available headroom is 3% or less than 3% of the aggregate NRI investment limit, a red flag shall be activated for that company.
11.3. Thereafter, the depositories and exchanges shall display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated, on their respective websites.
11.4. The data on the available investment headroom shall be updated on a daily end-of-day basis as long as the red flag is activated.
Aggregate FPI investment limit of the company
11.5. The system shall calculate the percentage of FPI holding in the company and the investment headroom available as at the end of the day with respect to the aggregate FPI investment limit
11.6. If the available headroom is 3% or less than 3% of the aggregate FPI investment limit, a red flag shall be activated for that company.
11.7. Thereafter, the depositories and exchanges shall display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated, on their respective websites.
11.8. The data on the available investment headroom shall be updated on a daily end-of-day basis as long as the red flag is activated.
Sectoral cap of the company
11.9. The system shall calculate the total foreign investment in the company by adding the aggregate NRI investment on the stock exchange, the aggregate FPI investment in the company and other foreign investment as provided by the company in the company master.
11.10. If the total foreign investment in a company is within 3% or less than 3% of the sectoral cap, then a red flag shall be activated for that company.
11.11. Thereafter, the depositories and exchanges shall display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated, on their respective websites.
11.12. The data on the available investment headroom shall be updated on a daily end-of-day basis as long as the red flag is activated.
12. The depositories shall inform the exchanges about the activation of the red flag for the identified scrip. The exchanges shall issue the necessary circulars/public notifications on their respective websites. Once a red flag has been activated for a given scrip, the foreign investors shall take a conscious decision to trade in the shares of the scrip, with a clear understanding that in the event of a breach of the aggregate NRI/FPI limits or the sectoral cap, the foreign investors shall be liable to disinvest the excess holding within five trading days from the date of settlement of the trades.
Breach of foreign investment limits
13. Once the aggregate NRI/FPI investment limits or the sectoral cap for a given company have been breached, the depositories shall inform the exchanges about the breach. The exchanges shall issue the necessary circulars/public notifications on their respective websites and shall halt all further purchases by :
13.1. FPIs, if the aggregate FPI limit is breached
13.2. NRIs, if the aggregate NRI limit is breached
13.3. All foreign investors, if the sectoral cap is breached
14. In the event of a breach of the sectoral cap/aggregate FPI limit/aggregate NRI limit, the foreign investors shall divest their excess holding within 5 trading days from the date of settlement of the trades, by selling shares only to domestic investors.
Method of disinvestment
15. The proportionate disinvestment methodology shall be followed for disinvestment of the excess shares so as to bring the foreign investment in a company within permissible limits. In this method, depending on the limit being breached, the disinvestment of the breached quantity shall be uniformly spread across all foreign Investors/FPIs/NRIs which are net buyers of the shares of the scrip on the day of the breach. The foreign investors are required to disinvest the excess quantity by selling them only to domestic investors, within 5 trading days of the date of settlement of the trades that caused the breach.
16. This method has been illustrated with the help of an example provided below.
17. As can be observed from the above table, the foreign investors/FPIs/NRIs which are required to disinvest shall be identified and shall be informed of the excess quantity that they are required to disinvest.
18. In the case of FPIs which have been identified for disinvestment of excess holding, the depositories shall issue the necessary instructions to the custodians of these FPIs for disinvestment of the excess holding within 5 trading days of the date of settlement of the trades.
19. In the case of NRIs which have been identified for disinvestment of excess holding, the depositories shall issue the necessary instructions to the Authorized Dealer (AD) Banks for disinvestment of the excess holding within 5 trading days of the date of settlement of the trades.
20. The depositories shall utilize the FPI trade data provided by the custodians, post custodial confirmation, on T+1 day, where T is the trade date. The breach of investment limits (if any) shall be detected at the end of T+1 day and therefore, the announcement pertaining to the breach shall be made at the end of T+1 day. The foreign investors who have purchased the shares of the scrip during the trading hours on T+1 day shall also be given a time period of 5 trading days from the date of settlement of such trades, to disinvest the holding accruing from the aforesaid purchase trades. In other words, the purchase trades of such foreign investors which have taken place of T+1 day, shall be settled on T+3 day and thereafter a time period from T+4 day to T+8 day shall be available to them to disinvest their entire holding arising from purchases on T+1 day.
21. If T+1 is a settlement holiday, then the custodial confirmation of the trade executed on T day shall be done on T+2 day and the subsequent settlement of the trade on T+3 day. In such a 22. A table summarizing the breach-disinvestment scenario is given below
22. A table summarizing the breach-disinvestment scenario is given below
23. In the event the foreign shareholding in a company comes within permissible limit during the time period for disinvestment, on account of sale by other FPI or other group of FPIs, the original FPIs, which have been advised to disinvest, would still have to do so within the disinvestment time period, irrespective of the fresh availability of an investment headroom during the disinvestment time period.
24. There shall be no annulment of the trades which have been executed on the trading platform of the stock exchanges and which are in breach of the sectoral caps/aggregate FPI limits/aggregate NRI limits. Failure to disinvest within 5 trading days
25. If a breach of the investment limits has taken place on account of the FPIs and the identified FPIs have failed to disinvest within 5 trading days, then necessary action shall be taken by SEBI against the FPIs.
Fees
26. The Designated Depository shall levy reasonable fee/charges on the company towards development, ongoing maintenance and monitoring costs at an agreed upon frequency.
1. Foreign Investment in India is regulated in terms of clause (b) of sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017. FEMA prescribes the various foreign investment limits in listed Indian companies. These include the aggregate FPI limit, the aggregate NRI limit and the sectoral cap. The RBI Master Direction (FED Master Direction No. 11/2017-18) dated January 04, 2018 provides a compilation of the instructions issued on Foreign Investment in India and its related aspects under FEMA.
2. As per FEMA, the onus of compliance with the various foreign investment limits rests on the Indian company. In order to facilitate the listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI has decided to put in place a new system for monitoring the foreign investment limits. The architecture of the new system has been explained in Annexure A.
3. The depositories (NSDL and CDSL) shall put in place the necessary infrastructure and IT systems for operationalizing the monitoring mechanism described at Annexure A. The Stock Exchanges (BSE, NSE and MSEI) shall also put in place the necessary infrastructure and IT systems for disseminating information on the available investment headroom in respect of listed Indian companies.
4. The depositories shall issue the necessary circulars and guidelines for collecting data on foreign investment from listed companies. The system for collecting this data from the companies shall go live on the date of the issuance of this circular. The companies shall provide the necessary data (details of which have been mentioned in Annexure A) to the depositories latest by May 15, 2018 (amended vide SEBI circular dated 27th April, 2018).
5. The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 18, 2018 (amended vide SEBI circular dated 27th April, 2018). The existing mechanism for monitoring the foreign investment limits shall be done away with once the new system is operationalized. RBI shall issue the necessary guidelines in this regard.
Annexure A
Architecture of the System for Monitoring Foreign Investment Limits in listed Indian companies
Housing of the System
1. The system for monitoring the foreign investment limits in listed Indian companies shall be implemented and housed at the depositories (NSDL and CDSL).
Designated Depository
2. A Designated Depository is a depository which has been appointed by an Indian company to facilitate the monitoring of the foreign investment limits of that company. As defined at Regulation 2(xxiii) of FEMA, the term ‘Indian company’ means a company incorporated in India and registered under the Companies Act, 2013.
3. The Designated Depository shall act as a lead depository and the other depository shall act as a feed depository.
Company Master
4. The company shall appoint any one depository as its Designated Depository for the purpose of monitoring the foreign investment limit.
5. The stock exchanges (BSE, NSE and MSEI) shall provide the data on the paid-up equity capital of an Indian company to its Designated Depository. This data shall include the paid-up equity capital of the company on a fully diluted basis. As defined at Regulation 2(xvii) of FEMA, the term “fully diluted basis” means the total number of shares that would be outstanding if all possible sources of conversion are exercised.
6. The depositories shall provide an interface wherein the company shall provide the following information to its Designated Depository:
i. Company Identification Number (CIN)
ii. Name
iii. Date of incorporation
iv. PAN number
v. Applicable Sector
vi. Applicable Sectoral Cap
vii. Permissible Aggregate Limit for investment by FPIs
viii. Permissible Aggregate Limit for investment by NRIs
ix. Details of shares held by FPI, NRIs and other foreign investors, on repatriable basis, in demat as well as in physical form
x. Details of indirect foreign investment which are held in both demat and physical form
xi. Details of demat accounts of Indian companies making indirect foreign investment in the capital of the company
xii. Whether the Indian company that has total foreign investment in it , is either not owned and not controlled by resident Indian Citizens or is owned or controlled by person’s resident outside India (Yes or No)
xiii. ISIN-wise details of the downstream investment in other Indian companies
The information provided by the companies shall be stored in a Company Master database. The Designated Depository, if required, may seek additional information from the company for the purpose of monitoring the foreign investment limits. The companies shall ensure that in case of any corporate action, the necessary modification is reflected immediately in the Company Master database.
7. In the event of any change in any of the details pertaining to the company, such as increase/decrease of the aggregate FPI/NRI limits or the sectoral cap or a change of the sector of the company, etc. the company shall inform such changes along with the supporting documentation to its Designated Depository. Such documentation may include:
i. Board of Directors resolution approving the increase/decrease
ii. General body resolution approving the increase/decrease
iii. Company Secretary certificate for compliance with FEMA, 1999
Reporting of trades
8. At present, as per SEBI guidelines, the custodians are reporting confirmed trades of their FPI clients to the depositories on a T+1 basis. This reporting shall continue and the data shall be the basis of calculating FPI investments/holding in Indian companies.
9. With respect to NRI (repatriable) trades, Authorized Dealer (AD) Banks shall report the transactions of their NRI clients to the depositories. The AD Banks shall be guided by the circulars issued by RBI in this regard.
Activation of a Red Flag Alert
10. The monitoring of the foreign investment limits shall be based on the paid-up equity capital of the company on a fully diluted basis to ensure that all foreign investments are in compliance with the foreign investment limits. 11. A red flag shall be activated whenever the foreign investment within 3% or less than 3% of the aggregate NRI/FPI limits or the sectoral cap. This shall be done as follows :
Aggregate NRI investment limit in the company
11.1. The system shall calculate the percentage of NRI holdings in the company and the investment headroom available as at the end of the day with respect to the aggregate NRI investment limit
11.2. If the available headroom is 3% or less than 3% of the aggregate NRI investment limit, a red flag shall be activated for that company.
11.3. Thereafter, the depositories and exchanges shall display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated, on their respective websites.
11.4. The data on the available investment headroom shall be updated on a daily end-of-day basis as long as the red flag is activated.
Aggregate FPI investment limit of the company
11.5. The system shall calculate the percentage of FPI holding in the company and the investment headroom available as at the end of the day with respect to the aggregate FPI investment limit
11.6. If the available headroom is 3% or less than 3% of the aggregate FPI investment limit, a red flag shall be activated for that company.
11.7. Thereafter, the depositories and exchanges shall display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated, on their respective websites.
11.8. The data on the available investment headroom shall be updated on a daily end-of-day basis as long as the red flag is activated.
Sectoral cap of the company
11.9. The system shall calculate the total foreign investment in the company by adding the aggregate NRI investment on the stock exchange, the aggregate FPI investment in the company and other foreign investment as provided by the company in the company master.
11.10. If the total foreign investment in a company is within 3% or less than 3% of the sectoral cap, then a red flag shall be activated for that company.
11.11. Thereafter, the depositories and exchanges shall display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated, on their respective websites.
11.12. The data on the available investment headroom shall be updated on a daily end-of-day basis as long as the red flag is activated.
12. The depositories shall inform the exchanges about the activation of the red flag for the identified scrip. The exchanges shall issue the necessary circulars/public notifications on their respective websites. Once a red flag has been activated for a given scrip, the foreign investors shall take a conscious decision to trade in the shares of the scrip, with a clear understanding that in the event of a breach of the aggregate NRI/FPI limits or the sectoral cap, the foreign investors shall be liable to disinvest the excess holding within five trading days from the date of settlement of the trades.
Breach of foreign investment limits
13. Once the aggregate NRI/FPI investment limits or the sectoral cap for a given company have been breached, the depositories shall inform the exchanges about the breach. The exchanges shall issue the necessary circulars/public notifications on their respective websites and shall halt all further purchases by :
13.1. FPIs, if the aggregate FPI limit is breached
13.2. NRIs, if the aggregate NRI limit is breached
14. In the event of a breach of the sectoral cap/aggregate FPI limit/aggregate NRI limit, the foreign investors shall divest their excess holding within 5 trading days from the date of settlement of the trades, by selling shares only to domestic investors.
Method of disinvestment
15. The proportionate disinvestment methodology shall be followed for disinvestment of the excess shares so as to bring the foreign investment in a company within permissible limits. In this method, depending on the limit being breached, the disinvestment of the breached quantity shall be uniformly spread across all foreign Investors/FPIs/NRIs which are net buyers of the shares of the scrip on the day of the breach. The foreign investors are required to disinvest the excess quantity by selling them only to domestic investors, within 5 trading days of the date of settlement of the trades that caused the breach.
16. This method has been illustrated with the help of an example provided below.
17. As can be observed from the above table, the foreign investors/FPIs/NRIs which are required to disinvest shall be identified and shall be informed of the excess quantity that they are required to disinvest.
18. In the case of FPIs which have been identified for disinvestment of excess holding, the depositories shall issue the necessary instructions to the custodians of these FPIs for disinvestment of the excess holding within 5 trading days of the date of settlement of the trades.
19. In the case of NRIs which have been identified for disinvestment of excess holding, the depositories shall issue the necessary instructions to the Authorized Dealer (AD) Banks for disinvestment of the excess holding within 5 trading days of the date of settlement of the trades.
20. The depositories shall utilize the FPI trade data provided by the custodians, post custodial confirmation, on T+1 day, where T is the trade date. The breach of investment limits (if any) shall be detected at the end of T+1 day and therefore, the announcement pertaining to the breach shall be made at the end of T+1 day. The foreign investors who have purchased the shares of the scrip during the trading hours on T+1 day shall also be given a time period of 5 trading days from the date of settlement of such trades, to disinvest the holding accruing from the aforesaid purchase trades. In other words, the purchase trades of such foreign investors which have taken place of T+1 day, shall be settled on T+3 day and thereafter a time period from T+4 day to T+8 day shall be available to them to disinvest their entire holding arising from purchases on T+1 day.
21. If T+1 is a settlement holiday, then the custodial confirmation of the trade executed on T day shall be done on T+2 day and the subsequent settlement of the trade on T+3 day. In such a 22. A table summarizing the breach-disinvestment scenario is given below
22. A table summarizing the breach-disinvestment scenario is given below
23. In the event the foreign shareholding in a company comes within permissible limit during the time period for disinvestment, on account of sale by other FPI or other group of FPIs, the original FPIs, which have been advised to disinvest, would still have to do so within the disinvestment time period, irrespective of the fresh availability of an investment headroom during the disinvestment time period.
24. There shall be no annulment of the trades which have been executed on the trading platform of the stock exchanges and which are in breach of the sectoral caps/aggregate FPI limits/aggregate NRI limits. Failure to disinvest within 5 trading days
25. If a breach of the investment limits has taken place on account of the FPIs and the identified FPIs have failed to disinvest within 5 trading days, then necessary action shall be taken by SEBI against the FPIs.
Fees
26. The Designated Depository shall levy reasonable fee/charges on the company towards development, ongoing maintenance and monitoring costs at an agreed upon frequency.
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