Returning Excess Foreign Investment - Can There be an Efficient Way Bankers can Adopt?

Foreign investment in India is governed by the Consolidated FDI Policy (“FDI Policy”), the Foreign Exchange and Management Act, 1999 (“FEMA”) and related rules and regulations.

Reporting Requirements

A company receiving Foreign Director Investment (FDI) is required to intimate RBI regarding receipt of FDI within 30 days from the date of receipt of foreign remittance [1] and intimate the appropriation of the same within 30 days from the date of allotment of securities [2]. As a general practice, a foreign investor wires-in funds slightly in excess of the intended investment amount, to ensure that there is no short fall in the investment amount received by the investee company due to foreign exchange fluctuations. However, in certain cases the amount received by an investee Company is substantially high, it would require to be refunded to the investor within 180 days from the date of receipt of foreign funds by the investee company. The process is very cumbersome, as detailed below. In case of exceeding the 180 days deadline, prior approval of RBI is required. There is no fixed amount that quantifies as excess foreign remittance. Certain bankers are of the view that even a rupee received in excess requires to be refunded, while certain bankers consider till about INR 3000/-. Getting the investor to wire-in exact amount taking forex fluctuations and wire transfer charges is sometimes quite a task.

Documents Involved in the Refund Process

Broadly, the following documents would be required to initiate the refund of excess foreign investment process. Some banks have their added processes and documents. Even with the same bank, some branches follow different procedures.

1. Request letter by the investee company - Letter from the company stating that excess foreign remittance is received, amount to be refunded, along with purpose for reversal.
2. Form A2 – A format prescribed by RBI providing for specific details of the Company such as the beneficiary’s name, the bank name and account number to which the reversal of funds to be credited.
3. Certificate from statutory auditor – A certificate by the statutory auditor certifying that the funds were parked in the share capital account and the same was unutilized and no interest has been earned or paid to the remitter on the same.
4. Form 15CA and Form 15CB:
   1. Form 15CA being an undertaking by the investee company furnishing details of the proposed remittance and tax deducted at source.
   2. Form 15CB beinga certificate from the auditor certifying that the investee company is making a certain amount of payment to a foreign party in a given currency.
5. Original FIRC (Foreign Inward Remittance Certificate) - The original FIRC to be submitted. The Banker scrutinises the documents and if found in order, he shall process the transaction and refund the excess foreign investment.
6. Letter to the banker to debit the company’s account.
7. Some banks do charge a fee for this service.

If that wasn’t a long enough list, each bank has its internal procedures and views. Since RBI has not laid down specific guideline in this regard investee companies are left with no option but to follow the instructions provided by the respective Authorised Dealer (AD) Bank.

1. Varied views are taken regarding the applicability of form 15CA and 15CB for the refund of excess foreign money. Most chartered accountants take a stance that post the implementation of the revised rules of Income-tax (21st Amendment) Rules, 2015 effective from 1 April 2016, Form 15CB need not be furnished. However, certain bankers insist on furnishing the same and do not process the refund of excess foreign money without both the forms.
2. There is an ambiguity regarding the threshold of “excess amount” which requires a refund.
3. The whole process is expensive and impacts a startup.
4. The timeline within which RBI would grant approval for refund of excess foreign investment, in cases the company exceeds the 180 days deadline, has not been determined.

Ease of doing: This process definitely needs better and easier governance. RBI could provide clear guidelines in terms of threshold for refund and the process to be followed by all bankers across the country. While at it, RBI could also reduce the time and costs for such refund. While FIRC issuance itself is a larger issue with most banks (issuing on time, typos, missing info etc.), banks can as per the FIRC credit the company’s account with the amount and any excess should be automatically reversed, if that is RBI’s requirements, without having the account holder having to bear the brunt.   Author: Shruthi Shenoy, Associate [1] Initial intimation to the RBI to be made through the Advance Reporting Form (ARF) [2] Allotment of securities to be intimated through e-form FC-GPR