Foreign Direct Investment (FDI) generally means investment in an Indian business entity by a non-resident individual/ business entity/ Government body etc. In India, FDI is regulated by the Foreign Exchange (Non-Debt Instrument) Rules, 2019.
Foreign Direct Investment (FDI) is formally defined as follows:
“Foreign investment” means any investment made by a person resident outside India on a repatriable basis in equity instruments of an Indian company or to the capital of a LLP”
However if an investment is made in a listed company and is less than 10 % of the total paid up capital, it is counted as Foreign Portfolio investment and not Foreign Direct Investment.
Before and after an FDI is received by a Company/ LLP, it has to follow the rules regarding sector eligibility, valuation, remittance channels etc.
Once an FDI is received, the Company/ LLP has to
- immediately request its banker to furnish a Know Your Client (KYC) and Foreign Inward Remittance Certificate (FIRC)
- Allot shares within 60 days of receipt of funds
- Submit Form FC-GPR or LLP -1 ( as the case maybe) to RBI along with a CS Certificate and CA Valuation Certificate and declarations
If the same is not done, its a contravention of the Reserve Bank of India FEMA Rules and other consequences may follow.