EFFECT OF TAX CLAUSES IN CONTRACTS - POST GST EFFECT

While drafting supply contracts or long term supply contracts, the clause that is often overlooked is the price clause or the tax clause. The price clause does not generally set out whether the price is inclusive or exclusive of taxes. Tax clauses in an agreement deal with deductions in the form of TDS and fails to take into account the indirect taxes payable on the supply of goods or services.

With the Goods and Services Tax being implemented, companies are revisiting their existing contracts to modify the price clause or the tax clause to factor the increase in rate of taxes. While this is understandable and advisable when the parties are willing to re - negotiate the price.

However, in a scenario where contracting party is not willing to re - negotiate the terms of the contract, is there any protection available for such suppliers?

It is not known to many that the remedy is available in Sale of Goods Act, 1930 (“Sale of Goods Act” or “Act”) . The Act provides cover to seller in the course of increase in rate of tax. Section 64A of the Sale of Goods Act is the relevant provision which is extracted below:

     64A. In contracts of sale, amount of increased or decreased taxes to be added or deducted

1.      Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulations as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such good tax- paid where tax was chargeable at that time.-

a.      if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition, and

b.      if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, the buyer made deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction.

2.      The provisions of sub-section (1) apply to the following taxes, namely:-

a.      any duty of customs or excise on goods.

b.      any tax on the sale or purchase of goods.

The above provision provides that in case of increase in the rate of excise duty or customs duty or sales tax (or VAT). The seller has the option to increase the contract price to factor the increase in rate of tax.

Similarly, in the case of decrease in rate of tax, the Sale of Goods Act provides that the buyer may deduct the decrease in tax amount from the payments due to the seller.

In both the scenarios, the statute gives protection to the seller and buyer from being sued as such deduction will not be considered as breach of contract by the supplier.

Concluding thoughts

It may be noted that the statutory cover is available only when the agreement is silent on increase in rate of taxes and who will bear the incidence of such taxes.

Further, the Act only contemplates increase or decrease in rate of customs duty, excise duty and VAT. Therefore, any increase in rate of service tax will not be covered under this Act and the supplier of service has no statutory remedy in such situations.

Since, Section 64A(2) of the Act specifically deals with increase in rate of customs duty, excise duty and sales tax, will the provision become redundant when the taxes are subsumed in GST.

On the contra, can we take resort under Section 64A(2)(b) which covers "any tax on the sale or purchase of goods". Therefore, will it be possible to argue that when the under GST is for sale or purchase of goods, the supplier will be covered under the said provision if the buyer refuses to compensate the buyer for the increase in rate of taxes.

A suitable amendment clarifying the above anomalies will help the industry.

END OF FOREIGN INVESTMENT PROMOTION BOARD (FIPB)

The Finance Minister during his budget presentation announced the government's plan to phase out Foreign Investment Promotion Board (FIPB).

Now, the government has announced that FIPB will be scrapped and henceforth all decisions on foreign direct investment in India will be taken by respective administrative ministries.

Way Forward

FDI proposals will be considered by the concerned ministry in consultation with the Department of Industrial Policy and Promotion (DIPP), which will soon come out with clear guidelines and operating procedures for clearance of proposals.

Timilines to be fixed for disposal of application for approval of FDI by competent authorities.

Rejection of FDI Proposal by the competent authorities will require concurrence of DIPP.

Quarterly review of FDI Proposals by DIPP is also envisaged.

Thoughts

Scrapping of FIPB is hailed as a decisive move which will further ease of doing business in India as it is expected that the competent authorities under different ministries/ departments would clear the FDI proposal without delay than the FIPB which consists of members from various ministries.

However, the effectiveness of this move would depend on the competency of the competent authorities.

FUND RAISING BY START - UPS (HOW START - UPS RAISE FUNDS?)

Startups raise funds at different stages, the stages of raising funds are referred to as seed round, series A-B-C etc. While seed money gives the startup just enough runway to move from the early conceptual phase towards developing a prototype or the initial product, the other rounds are mostly led by venture capitalists.

However, raising funds by startups is not as easy as it sounds, as the general high risk nature of startups coupled with lack of collateral makes it increasingly difficult for startups to raise debt or equity, this results in a significant number of startups failing to take – off due to non – availability of capital. To address the situation and provide funding support to Startups, Government proposed the following in the Action Plan:

·     Fund of funds: Setting - up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.

·     Debt funding: Debt funding to Startups is also perceived as high risk area and to encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years.

A company can raise capital through issue of equity or by availing debt. The debt can be availed against issue of debentures or against securitisation of asset. The issue of capital shall be in accordance with the provisions Companies Act and FEMA.

Issue of equity:

The share capital of a company can be of two kinds, i.e. equity share capital and preference share capital. An Indian company can raise funds through issue of capital either to its existing shareholders, i.e., rights issue of shares or by making an offer on a private placement basis or preferential allotment of certain specified instruments to a third person.

Indian companies eligible to receive FDI, are allowed to issue equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares to a person resident outside India.

FEMA IMPLICATIONS

When the Company raises equity capital from a non – resident, the following additional requirements arise under FEMA:

(i)                      In case of issuing companies which are not listed on the stock exchange, price at which shares issued to the person resident outside India under the FDI Policy shall not be less than the fair valuation of shares done by a SEBI registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on arm’s length basis.

(ii)                   Further, Indian companies are also allowed to freely issue shares on rights basis to its non-resident shareholders in compliance of the provisions of the Companies Act, at a price which is not less than the price at which the offer on right basis is made to resident shareholders (even if such price is less than the fair market value of shares). 

Apart from the compliance of abovementioned pricing guidelines, the Indian entity accepting the investment is required to issue the capital instruments within 180 (one hundred eighty) days from the date of receipt of the inward remittance failing which Indian entity will be required to refund the amount of consideration so received to the non-resident investor through outward remittance. The receipt of consideration and issue of shares is also required to be reported to the Regional Office of the RBI under whose jurisdiction the Registered Office of the company accepting the investment / issuing shares is situated through an Authorised Dealer Category – I bank. 

Raising capital through issue of debt instrument

A company can raise capital by way of availing a debt in the form of loans, issuing debentures or any other instrument evidencing debt on the Company. Section 179(3) (d) of the Companies Act gives power to board of directors of a company to borrow monies on behalf of the company, which can be exercised by them only by means of a resolution passed at their meeting. Therefore, a private company may borrow loans of any amount by passing a board resolution.

FEMA IMPLICATIONS

Under FEMA, all types of non-convertible, optionally convertible or partially convertible preference shares and debentures issued to persons resident outside India are considered as debt. Accordingly, all norms applicable for ECBs relating to eligible borrowers, recognised lenders, amount and maturity, end-use stipulations, etc. are required to be complied with, at time of issue of non-convertible instruments to the person resident outside India.

Karnataka Start - Up Policy

Apart from the initiatives taken by the Government of India, State Governments have also been pro – active in creating a conducive environment for startups, to attract entrepreneurs to launch their business from their states.

For instance, the state of Karnataka had launched its startup policy (KSP) prior to the introduction of the Action Plan by Government of India. KSP provided for self - certification under labour laws even prior to the introduction of the Action Plan. The definition of startup under KSP is different from the definition under the Action Plan. KSP recognizes only technology based startups which satisfies the following conditions for benefits discussed under KSP:

i.                    The startup must not have been registered/incorporated for more than 4 (Four) years (Bio – technology companies have extended period of seven years).

ii.                  The company/entity should be registered in Karnataka under the Karnataka Shops and Commercial Establishment Act, 1961.

iii.               The company employs at least 50 (fifty) per cent of its total qualified workforce in Karnataka, which shall not include contract employees.

iv.               The turnover of the startup has not exceeded fifty crores.

Some of the key features of KSP are mentioned below:                         

i.                     The government will provide grants and financial assistance to all professional and post – graduate institutions for setting – up new age incubation network (NAIN) which would be networked and connected to a common portal.

ii.                   Setting up of Technology Based Incubators (TBIs) in institutions of higher learning with well-developed Research and development facilities to foster a strong link between R&D and commercialization of technologies so developed.

iii.                 Funding in the form of Grant-in-aid limited to a one time grant of upto Rs. 50 lakhs to encourage innovators who may need early stage funding to stimulate commercialization of research discoveries.

iv.                 Creating a fund of funds which will invest in venture funds that invest in startups in various sectors.

v.                   self-certifications under the following Acts and rules framed there under barring inspections arising out of specific complaints:

a.         The Factories Act 1948

b.        The Maternity Benefit Act 1961

c.         The Karnataka Shops & Commercial Establishments Act 1961

d.        The Contract Labour (Regulations & Abolition) Act 1970

e.         The Payment of Wages Act, 1936

f.          The Minimum Wages Act, 1948

g.        The Employment Exchanges (Compulsory Notification of Vacancies) Act 1959

Similarly, state governments in Andhra Pradesh and Odisha have also framed their respective state policies with a view to develop the ecosystem in their state and attract investment and create employment in the state.

Conclusion

The initiative taken by the state governments is commendable as the state governments compete with one another to provide infrastructure and also take measures to ease the compliance requirements under the state legislations.

PROCEDURE FOR RECOGNITION OF START - UP UNDER THE START UP POLICY

In my previous post I had explained the conditions to be satisfied by an entity to qualify as a start - up under the start - up policy. 

In this post, the process for recognition of start - ups is explained:

Startups seeking recognition are required to submit one of the following documents along with their application:

a) a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator established in a postgraduate college in India; or

b) a letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or

c) a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator recognized by Government of India; or

d) a letter of funding of not less than 20 per cent in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business. Department of Industrial Policy and Promotion may include any such fund in a negative list for such reasons as it may deem fit; or

e) a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or

f) a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.

Recognition through mobile app: The Notification issued by GOI also provides for recognition through a mobile app/portal[3] of the Department of Industrial Policy and Promotion.

Once such application with relevant document is uploaded, a real-time recognition number will be issued to the startup.

Penalty for uploading forged documents:

If on subsequent verification, such recognition is found to be obtained without uploading the document or uploading any other document or a forged document, the concerned applicant shall be liable to a fine which shall be fifty per cent of paid up capital of the startup but shall not be less than Rupees 25,000.

Conclusion:

It is understood that DIPP has thus far recognized 798 Startups and 10 Startups have been approved for availing tax benefit by IMB[1].

While the number of startups recognized under the scheme does not tally with the efforts taken by the government, the requirement in the nature of recommendation or a letter of support from an incubation center or an investor for seeking recognition has ensured that only those startups which have the potential for growth are recognized under the Action Plan.

(Contact the author @ muthukumaran.adv@gmail.com for any queries or comments)

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[1] Start – up status report published by DIPP in http://startupindia.gov.in/status.php

[3] http://startupindia.gov.in/ is the official website launched by Government of India for the purpose of recognition of startups.

Definition of Start – up (Will my entity qualify as Start - up?)

In order to avail the benefits under the Action Plan for start - ups, any entity seeking such benefits should qualify as a start - up.  Let us analyse the entities that would qualify as a start - up and the conditions that the entities need to satisfy for availing the various benefits under the Start - up  policy released by the Government.

Definition of Start - Up

The Government of India issued a notification[2] (Notification) which defines Startup[3] as any entity incorporated or registered in India as a (i) pri­vate limited company; or (ii) limited liability partnership; or (iii) registered partnership firm which satisfies the following conditions:

a.       It has not completed five years from the date of its incorporation/registration

b.      Its turnover for any of the financial years has not exceeded Rupees 25 crore, and

c.  It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property[4];

d.    Such entity is not formed by splitting up, or reconstruction, of a business already in existence.

Other conditions:

i.      The entity is not formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’;

ii.    In order to obtain tax benefits, a startup so identified under the above definition shall be required to obtain a certificate of an eligible business from the Inter-Ministerial Board[6].

Thus, the requirement of Inter - ministerial Boar approval arises only in the case of startups seeking benefits under I.Tax Act and not for IPR related benefits as stipulated under the Action Plan.

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[1] Entity means a private limited company (as defined in the Companies Act, 2013), or a registered partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2002).

[2] Notification dated 17.02.2016 issued by Ministry of Commerce and Industry (Department of Industrial Policy and Promotion), which has adopted the definition provided in the Action Plan.

[3] The definition is similar to the definition of Startup under the Action Plan except that the

[4] An entity is considered to be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialize: a. A new product or service or process, or b. A significantly improved existing product or service or process, that will create or add value for customers or workflow. Provided that the mere act of developing: a. products or services or processes which do not have potential for commercialization, or b. undifferentiated products or services or processes, or c. products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition.

[5] See, notification dated February 17, 2016 issued by the Ministry of Commerce and Industry.

[6] The Inter – Ministerial Board shall consist of: a) Joint Secretary, Department of Industrial Policy and Promotion, b) Representative of Department of Science and Technology, and c) Representative of Department of Biotechnology.

Startup Action Plan

In order to boost the start – up culture in India and strengthen the start – up ecosystem by nurturing innovation and entrepreneurship, Government of India introduced the start – up action plan (“Action Plan”) on 16^th January, 2016, that aims to empower the start – ups to grow through innovation and design and also address the difficulties faced by new enterprises by relaxing compliance requirements and addressing the regulatory hurdles faced by new enterprises.

The Action Plan is structured on three aspects viz. 

(i) Simplification and Handholding 

(ii) Funding Support and Incentives 

(iii) Industry-Academia Partnership and Incubation.

The Action Plan was followed by amendments in various legislations and notification issued by the government under various enabling legislations, to give effect to the road map laid down by government while introducing the start – up action plan. 

The action points in the Action Plan have been implemented without much delay, which has considerably reduced the number of compliance requirements for a new enterprise. Before analysing the benefits available under the Action Plan, it is important to understand when an entity qualifies as a startup under the Action Plan. 

I will be discussing the various benefits available to startups in the regulatory and legal sphere in my subsequent posts.

DELAY IN REALIZATION OF EXPORT PROCEEDS - PROCEDURE FOR EXTENSION OF TIME

It is provided in Rule 9(1)(b) of the Export Regulations that the AD Bank can extend the period from nine months considering the directions issued by RBI in this regard.

In this regard, RBI has delegated the power to AD Banks and permitted AD Banks to extend the period of realization of export proceeds beyond stipulated period of realization of export proceeds, up to a period of 6 (six) months at a time subject to satisfying the conditions laid down by RBI.

Therefore, in case of delay in repatriation of export proceeds, the company should approach the AD Bank for extension of time up to 6 (six) months for realization of export proceeds.

The AD Bank will follow the guidelines laid down by RBI in this regard and, accordingly, allow extension of time.

Export of Goods – Compliance under FEMA

Under Regulation 9 of Export of Goods & Services Regulations, 2015 (“Export Regulations”) the amount representing full export value of goods needs to be realized and repatriated within 9 (nine) months from the date of export for all exporters including Units in Special Economic Zones (SEZs), Status Holder Exporters, Export Oriented Units (EOUs), Units in Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs).

In case of goods exported to a warehouse established outside India, the same may be realized within 15 (fifteen) months from the date of shipment of goods.

Therefore, the obligation is on the exporter to ensure that the export proceeds are repatriated within the prescribed period. The AD Banks are required to ensure repatriation within said period and are required to report any delay to RBI. Accordingly, banks have internal mechanism in place to ensure that the export proceeds are repatriated within the stipulated time.

Further, in the case of goods exported on consignment basis, the authorized dealer while forwarding shipping documents to his overseas branch/ correspondent, should instruct the latter to deliver them only against trust receipt/ undertaking to deliver sale proceeds by a specified date within the period prescribed for realization of proceeds of the export.

Therefore, even in the case of consignment sales or sales through a consignment agent, the exporter should realize the exports within nine months from the date of export of the goods.

Further, It may be noted that RBI has issued detailed directions in A.P. (DIR Series) Circular No.68 [(1)/23(R)] dated May 12, 2016 (“Export Circular”) for the procedure to be followed on export of goods, the relevant guidelines in relation to consignment export is reproduced below:

(i)                 When goods have been exported on consignment basis, the AD, while forwarding shipping documents to his overseas branch/ correspondent should instruct the latter to deliver them only against trust receipt/undertaking to deliver sale proceeds by a specified date within the period prescribed for realization of proceeds of the export. This procedure should be followed even if, according to the practice in certain trades, a bill for part of the estimated value is drawn in advance against the exports.

(ii)               The agents/consignees may deduct from sale proceeds of the goods expenses normally incurred towards receipt, storage and sale of the goods, such as landing charges, warehouse rent, handling charges, etc. and remit the net proceeds to the exporter.

(iii)             The account sales received from the Agent/Consignee should be verified by the AD. Deductions in Account Sales should be supported by bills/receipts in original except in case of petty items like postage/cable charges, stamp duty, etc.

(iv)              Freight and marine insurance must be arranged in India.

(v)                AD may allow the exporters to abandon the books, which remain unsold at the expiry of the period of the sale contract. Accordingly, the exporters may show the value of the unsold books as deduction from the export proceeds in the Account Sales.

Therefore, any entity engaged in export of goods has to ensure that it complies with these guidelines in the case of consignment exports. 

COMPLIANCE REQUIREMENTS UNDER FEMA

The Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA” or “Act”) was introduced to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments in the post – liberalisation era.

FEMA is applicable to all parts of India. The Act is also applicable to all branches, offices and agencies outside India owned or controlled by a person who is a resident of India.

All transactions undertaken by a resident that do not alter his assets or liabilities outside India are current account transactions. In terms of Section 5 of the FEMA, persons are free to buy or sell foreign exchange for any current account transaction except for those transactions on which Central Government has imposed restrictions. Vide the Rules and Regulations framed under FEMA, certain compliance requirements are imposed on entities carrying out transactions involving foreign exchange. The most basic compliance requirements that would impact all entities is discussed in the table below: 

S. No.	Subject
1.	Foreign Investment: Reporting of FDI for fresh issuance of shares: An Indian company receiving investment from outside India for issue of shares or other eligible securities under the FDI Scheme, should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank through its AD Category I bank, not later than 30 days from the date of receipt in the Advance Reporting Form (ARF). Reporting of issue of shares Foreign Collaboration - General Permission Route (FC- GPR) ·         After issue of shares or other eligible securities, the Indian company has to file Form FC-GPR not later than 30 days from the date of issue of shares[1]. ·         The form has to be filed through its AD Category-I bank, to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated. Annual Return on Foreign Liabilities and Assets ·         All Indian companies which have received FDI and/ or made FDI abroad in the previous year(s) including the current year, should file the annual return on Foreign Liabilities and Assets (FLA).[2] Reporting of FDI for Transfer of shares Foreign Collaboration-Transfer of Shares (FC-TRS) ·         Reporting of transfer of shares and other eligible securities between residents and non-residents and vice- versa is to be made in Form FC-TRS. ·         The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. ·         The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/ transferee, resident in India.
2	Overseas Direct Investment (ODI): Overseas investments (or financial commitment) in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognised as important avenues for promoting global business by Indian entrepreneurs.
	Form ODI: An Indian Party and a Resident Individual making an overseas investment is required to submit form ODI. Further, an Indian Party making overseas direct investment will have to comply with the following: ·         receive share certificates or any other documentary evidence of investment in the foreign JV / WOS as an evidence of investment and submit the same to the designated AD within 6 months; ·         repatriate to India, all dues receivable from the foreign JV / WOS, like dividend, royalty, technical fees etc.; ·         submit to the Reserve Bank through the designated Authorized Dealer, every year, an Annual Performance Report in Part III of Form ODI in respect of each JV or WOS outside India set up or acquired by the Indian party. ·         report the details of the decisions taken by a JV/WOS regarding diversification of its activities /setting up of step down subsidiaries/alteration in its share holding pattern within 30 days of the approval of those decisions by the competent authority concerned of such JV/WOS in terms of the local laws of the host country. These are also to be included in the relevant Annual Performance Report; and ·         in case of disinvestment, sale proceeds of shares/securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares /securities and documentary evidence to this effect shall be submitted to the Reserve Bank through the designated Authorised Dealer.
3	Trade
	Exports ·         EDF Form: Export Declaration Form (EDF) is used to declare export of goods from Non-EDI ports. ·         The exporter shall realize and repatriate the export proceeds within nine months from the date of export for all exporters including Units in Special Economic Zones (SEZs), Status Holder Exporters, Export Oriented Units (EOUs), Units in Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs) until further notice. ·         For goods exported to a warehouse established outside India, the proceeds shall be realized within fifteen months from the date of shipment of goods. Softex Form: All software exporters are required to file single as well as bulk SOFTEX form in excel format for certification. Imports ·         Importers to furnish appropriate document evidencing import of goods/ services within 6 months from the date of remittance. ·         Remittances against imports should be completed not later than six months from the date of shipment, except in cases where amounts are withheld towards guarantee of performance, etc.

Reporting on e-Biz Portal of the Government of India

Physical filing of FC-GPR, ARF and FCTRS forms is discontinued from February 8, 2016 and online filing through government’s e-Biz portal has been made mandatory. This is done with a view to promoting the ease of reporting of transactions under foreign direct investment (FDI), the filing of the ARF, Form FC-GPR and Form FCTRS has also been enabled under the e-Biz platform of the Government of India.

The design of the reporting platform enables the customer to login into the e-Biz portal, download the reporting forms, complete and then upload the same onto the portal using their digitally signed certificates.

The Authorised Dealer Banks (ADs) will be required to download the completed forms, verify the contents from the available documents, if necessary by calling for additional information from the customer and then upload the same for RBI to process and allot the Unique Identification Number (UIN).

Compounding

Where a company fails to comply with the requirements under FEMA and the Rules and Regulations made thereunder, such company can seek compounding of any admitted irregularities whether relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office/ Liaison Office, as applicable.

The applicant should give an undertaking that the applicant is not under investigation of any agency such as DOE, CBI, etc. in order to complete the compounding process within the time frame.  

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[1] Issue of bonus or rights shares to persons resident outside India directly or on amalgamation/ merger with an existing Indian company, as well as issue of shares on conversion of ECB/ royalty/ lumpsum technical know-how fee/ import of capital goods by units in SEZs has to be reported in Form FC-GPR.

[2] FLA Return is available in the RBI Website.