India Inc. receiving FDI for issue of shares should not sit thinking that they have got a lot to cheer about the foreign investment received because the RBI (Reserve Bank of India) has suggested certain changes in respect of the time frame for issue of shares to bring the provisions of FEMA, 1999 (Foreign Exchange Management Act) in sync with the provisions of Companies Act 2013 and also proposed to levy heavy penalty for non-compliance of the laws.

A brief insight into the provisions has been highlighted below:

Provisions as per Companies Act 2013: Section 42 (6) of the Companies Act 2013 says that a company making an offer or invitation under this section shall allot its securities within 60 days from the date of receipt of the application money for such securities.

Provisions as per FEMA 1999 (Before proposed amendment): The relevant provision says that shares are to be allotted within 180 days from the date of receipt of money. And within 30 days from the date of receipt of money, advance reporting is to be done by filing ARF, further within 30 days from the date of issue of shares, report the same by filing FC-GPR.

Provisions as per FEMA 1999 (After proposed amendment): The RBI has proposed certain changes in respect of the of the time frame for issue of shares to align the provisions of FEMA 1999 with the provisions of the Companies Act 2013; that is issue / allotment of shares shall be done within 60 days from the date of receipt of money. Further, reporting of ARF to be done within 30 days from the receipt of funds and reporting in FC-GPR to be done within 30 days from the date of issue / allotment of shares.

                           Penalty: Any delay in reporting beyond the prescribed period (30    days from the receipt of   funds in case of report of ARF and 30 days from issue of shares in case of report FC-GPR) shall attract a penalty of one percent of the total amount of investment subject to a minimum of Rupees Five Thousand and maximum of Rupees Five Lakhs per month or part thereof for the first six months of delay and twice that rate thereafter, to be paid online into a designated account in RBI.

Any company receiving foreign investment and submitting the required reports with delay but without paying the penalty as mentioned above shall be liable to penal provisions mentioned in FEMA, 1999 and the rules/regulations framed thereunder including compounding.

RBI also proposed to introduce similar penalty structure for other mandatory reporting requirements under FEMA, 1999.