Heavy Penalty Starts Soon

The Companies (Registration Offices and Fees) Second Amendment Rules 2018 has been notified on 7th May 2018. Accordingly, in case the due date of filings under Section 92 (Annual Return) or 137 (Annual Financial Statement) of the Companies Act, 2013 expires after 30/06/2018, the additional fee @Rs.100 per day shall become payable in respect of MGT-7, AoC-4, AoC-4 XBRL and AoC-4 CFS. In all other cases where the belated annual returns or balance sheet/financial statement which were due additional fee as per the applicable slab for the period of delay up to 30th June 2018 plus @Rs.100 per day w.e.f 1st July 2018 shall become payable. Plan all the belated returns accordingly.

It is time to advice all your clients to complete all non-compliance for previous year at the earliest. Remember, we are always ready to help you with ROC matters and other Compliance related issues.

In this edition, we will be discussing about monitoring FI limits in listed companies along with our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST.

Saranya Deivasigamani,
CEO

Foreign Investment Limits

Reserve Bank of India (RBI) usually receives data on investment made by Foreign Portfolio Investors (FPI) and Non-resident Indians (NRI) on stock exchanges from the custodian banks and Authroised Dealer banks for their respective clients. Now RBI along with hands of SEBI imposed restrictions beyond a threshold limit on FPI / NRI investment in listed Indian Companies.

In order to enable listed Indian companies to ensure compliance with the various foreign investment limits, RBI in consultation with SEBI, has decided to put in place a new system for monitoring foreign investment limits, for which the necessary infrastructure and systems for operationalising the monitoring mechanism, will be made available by the depositories. The same has been notified by SEBI vide Circular – IMD/FPIC/CIR/P/2018/61 dated April 05, 2018 read with Circular IMD/FPIC/CIR/P/2018/74 dated April 27, 2018.

In terms of para 6 of Annexure A of the circular dated April 05, 2018, all listed Companies are required to provide the specified data / information on foreign investment to the depositories. The requisite information may be provided before May 15, 2018. The listed Indian companies, in non-compliance with the above instructions will not be able to receive foreign investment and will be non-compliant with Foreign Exchange Management Act, 1999 (FEMA) and regulations made thereunder.

Further, upon implementation of the new monitoring system, all Authorised Dealer Banks would be required to provide RBI, the details of investment made by their respective NRI clients to the depositories in the format as provided by the depositories / SEBI. In addition, the reporting to RBI in the existing system, viz., LEC (NRI) and LEC (FII), would continue.

Items in SEBI Circular:

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 same, SEBI and RBI has decided to put in place a new system for monitoring the FI limits.

3. The depositories (NSDL and CDSL) and the Stock Exchanges (BSE, NSE and MSEI) shall put in place the necessary infrastructure and IT systems for operationalizing the monitoring mechanism.

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 to the depositories latest by April 30, 2018.

5. The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 01, 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 FI 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 its basic information to its Designated Depository. The information provided by the companies shall be stored in a Company Master database.

7. In the event of any change in any of the details pertaining to the company, 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. The present SEBI guidelines, the custodians are reporting confirmed trades of their FPI clients to the depositories on a T+1 basis reporting shall continue.

9. With respect to NRI (repatriable) trades, Authorized Dealer (AD) Banks shall report the transactions of their NRI clients to the depositories.

Activation of a Red Flag Alert

10. The monitoring of the FI limits shall be based on the paid-up equity capital of the company on a fully diluted basis to ensure that all FI are in compliance with the FI limits.

11. A red flag shall be activated whenever the FI within 3% or less, the aggregate NRI/FPI limits or the sectoral cap.

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.

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.

17. 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.

18. 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.

19. 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.

20. 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 scenario, the breach would be detected at the end of T+2 day.

21. 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.

22. 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

23. 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

24. The Designated Depository shall levy reasonable fee/charges on the company towards development, ongoing maintenance and monitoring costs at an agreed upon frequency.

Legal Term

Manslaughter

The crime of killing a human being without malice aforethought, or in circumstances not amounting to murder.

MCA Updates

Commencement of 17+ sections in Companies Act, 2013.

SEBI Updates

No major notifications.

RBI Updates

Monitoring of foreign investment limits in listed Indian companies.
Investment by Foreign Portfolio Investors (FPI) in Debt .

Income Tax Updates

No major notifications.

GST Updates

New version of GSTR-4 offline tools (V2.1) is now available on portal.
E-way bill operations are compulsory for intra-state movement of goods for Nagaland from 1st May 2018.
E-way bill operations are compulsory for intra-state movement of goods for Arunachal Pradesh, Madhya Pradesh, Meghalaya, Puducherry and Sikkim from 25th April 2018.
E-way bill operations are compulsory for intra-state movement of goods for Bihar, Haryana, Himachal Pradesh, Jharkhand, Tripura and Uttarakhand from 20th April 2018.