[co-author: Ravina Mirapuri ]

Governmental organizations in India have recently introduced changes that may affect clients with Indian subsidiaries. These changes involve:

• reporting requirements related to foreign investment into Indian entities, and
• new registration obligations for directors serving on the boards of Indian companies.

Foreign Investment Reporting Requirements

On June 7, 2018, the Reserve Bank of India (RBI) introduced new rules impacting the reporting requirements for foreign investments in Indian companies.

Indian companies not in compliance with the new reporting requirements as of July 20, 2018, are prohibited from receiving foreign investments (including indirect foreign investments) and are being treated as non-compliant with the Foreign Exchange Management Act, 1999 (FEMA). The RBI has not yet indicated whether it will permit late registration or a remedial process for non-compliant companies.

In an effort to consolidate various types of existing reporting requirements, the RBI introduced the Foreign Investment Reporting and Management System (FIRMS), which is available here, where all Indian companies are required to file a Single Master Form (SMF) to report all foreign investment into their companies. Prior to the SMF, there were approximately 12 different types of forms related to foreign investment reporting. The RBI is establishing a centralized system where all foreign investments made in any Indian company can be reported.

For our clients that maintain a subsidiary in India, reporting through FIRMS is required for all prior foreign investments made by the parent company or any other company into the subsidiary in India.

Registration on FIRMS is being implemented in two phases. The first phase required every Indian company to register on FIRMS and furnish historical information on any prior foreign investment received, even if previously reported. The registration deadline was July 20, 2018. Companies that completed registration by that date can continue to revise and update the furnished information until August 15, 2018. Details on the second phase will be made available by the RBI in August 2018.

Updated Director Registration Requirements

The Ministry of Corporate Affairs (MCA) has introduced a new registration requirement for directors serving on the boards of Indian companies.

All directors who have been assigned a Director Identification Number (DIN) on or before March 31, 2018, will have to complete a Know Your Customer (KYC) process and file a form DIR-3 KYC on or before August 31, 2018. Failure to file by August 31, 2018, will deactivate the director's DIN and be subject to penalties for reactivation.

The government introduced this new requirement as part of its continuing effort to reduce the number of shell companies and inactive directorships and also to verify the credentials of management.

For our clients that maintain a subsidiary in India, both resident and non-resident directors will be required to file by the deadline and provide an annual update with the current submission of financial statements with the MCA.