Understanding Form FC-GPR and Why Filing Matters
Md Saddam Hussain
Md Saddam Hussain is a highly skilled and experienced Company Secretary specializing in corporate laws, regulatory compliance, and legal advisory. With expertise in the Companies Act, FEMA, LLP regulations, SEBI compliance, NCLT proceedings, and liaisoning with government authorities, he provides strategic guidance to businesses, ensuring seamless adherence to statutory obligations. Known for his meticulous approach and in-depth knowledge of corporate governance, he assists companies in mitigating risks, handling regulatory filings, and navigating complex legal frameworks. With a commitment to excellence and integrity, Md Saddam Hussain plays a crucial role in supporting businesses with compliance, litigation, and corporate structuring.
Introduction
When a resident Indian company issues shares (including equity shares and compulsorily convertible preference shares (CCPS), among others) to a non-resident, thereby triggering a foreign investment, it is required to notify the Reserve Bank of India (RBI) through Form FC-GPR.
Key points:
- This requirement arises under the Foreign Exchange Management Act (FEMA) and the Non-Debt Instruments Rules (for instance, Schedule I) governing Foreign Direct Investment (FDI).
- The form must be filed within 30 days from the date of issue/allotment of shares to the non-resident investor.
- The objective: ensure transparency of foreign investment flows, help the RBI to monitor FDI inflows, and ensure compliance with sectoral/route norms.
Failure to file this form, or delayed filing, constitutes a contravention under FEMA. This, in turn, empowers the RBI to initiate penal action, or the company may apply for compounding of the contravention.
Why Compounding Matters: Benefits and Risks
Benefits
- Rapid resolution and reduced litigation: Instead of awaiting full enforcement action or adjudication, compounding allows prompt settlement.
- Cost and resource savings: Avoids drawn-out legal proceedings, potential reputational damage, etc.
- Certainty: After payment and issuance of the compounding order, the contravention is deemed closed, and no further prosecution may be initiated for that instance.
- Demonstrates compliance intent: By coming forward proactively, the company signals its willingness to adhere to regulatory requirements.
Risks
- Penalty amount: The amount payable could still be significant depending on the nature/quantum of contravention.
- Non-eligibility: Some contraventions (especially those involving serious offences, money-laundering, national security, or where the amount cannot be quantified) may not be compoundable.
- Repeated contraventions: If a similar contravention was compounded within the last 3 years, a new one may not be eligible.
- Delay in filing: Even if compounding is possible, the longer the delay (and the more serious the contravention), the higher the risk of more severe action or higher penalty.
- Reputational/transactional impact: A compounding order may still need to be disclosed in public filings (for listed companies) and may impact investor perception. For example, some prospectuses mention delays in FC-GPR filing and the need for compounding.
Thus, while compounding is an attractive route, one should approach it with a full understanding of the implications.
The Step-by-Step Process of Compounding for FC-GPR Contravention
Here’s a breakdown of how the process generally works for a company that has delayed/non-filed Form FC-GPR (or related contravention) and wishes to apply for compounding.
Step 1: Identify the contravention and quantify it
a. Recognise the event: e.g., issue/allotment of shares to non-resident, receipt of foreign investment, but failure to file FC-GPR within 30 days.
b. Record all relevant facts: date of allotment, amount of investment, number of shares, nature of instrument (equity/CCPS/convertible debenture), route (automatic/Government), sector cap, pricing, etc.
c. Check whether the situation triggers any other contravention (e.g., issue of shares without requisite approvals, pricing violations, refund of share application money after timelines), which also may need compounding.
d. Quantify the amount of contravention (e.g., amount of foreign investment not reported, or delayed period, or number of days beyond due). This helps in assessing the likely penalty and eligibility.
Step 2: Rectify the procedural lapse (file the overdue return)
a. Even before applying for compounding, the company should file the Form FC-GPR (and any other pending forms) that are overdue. The filing should be completed to bring the transaction into regulatory visibility. For example, if a delay occurred, file the form even though it is late.
b. Ensure that all supporting documentation is in place: Foreign Inward Remittance Certificate (FIRC), valuation report (if required), Board resolution for allotment, KYC of remitter, copy of PAS-3 (if required), etc.
c. The rectification demonstrates good faith and improves chances of favourable treatment in compounding.
Step 3: Prepare the compounding application
a. Address the application to the Compounding Authority, which may be an officer of the RBI (or, in some cases, the Directorate of Enforcement (ED)), depending on the nature and amount of the contravention under the relevant rules.
b. Include a covering letter, and annex the Form for compounding (as per rules). Typical contents include:
- Company details – name, date of incorporation, PAN, nature of business.
- Details of non-resident investor(s) – name, country, nature of instrument, amount invested.
- Date of allotment/issue; amount of foreign investment; amount not reported or delay in reporting; nature of contravention.
- Explanation/justification: why the delay or default occurred; steps taken to rectify; internal controls to prevent recurrence.
- Supporting documents: audited balance sheet of the company, FIRC, valuation report (if applicable), Board resolution, copy of FC-GPR filed (even if late), copy of Memorandum & Articles of Association, KYC certificate of remitter, etc.
c. Pay the application fee: Under the earlier rules, the fee was ₹5,000; however, under the updated Foreign Exchange (Compounding Proceedings) Rules, 2024, it is ₹10,000 (excluding GST) for filing a compounding application.
d. Apply to the appropriate Regional Office of RBI (or ED) along with the required documents.
Step 4: Scrutiny, hearing, and issuance of order
a. Upon receipt of the application, the compounding authority reviews the application. They may request additional information or documents. If the applicant fails to provide within the specified time, the application may be rejected.
b. The applicant may be given an opportunity for a personal hearing (though not always mandatory) — often the applicant is expected to attend to explain the contravention, reasons for delay, and remedial actions taken.
c. The compounding authority will assess the quantum of contravention, its nature and seriousness, the period of delay, any unfair gain or loss to the exchequer, the company’s compliance history, and whether disclosure was voluntary, among other factors.
d. Within 180 days from the date of application (in most cases), the authority should issue a Compounding Order, specifying: amount to be paid, terms of payment, and certificate of compounding to be issued upon payment.
Step 5: Payment of penalty and closure
a. The amount specified in the order (penalty) must be paid within the timeframe specified (usually 15 days from the date of the order) via NEFT/RTGS or other mode as permitted. Under the 2024 rules, digital payments are allowed.
b. Once payment is made, the compounding authority issues a certificate of compounding (or acknowledgement), which marks the closure of that contravention. Further prosecution or enforcement for that specific instance generally cannot be initiated.
c. The company should retain proof of payment, order, and certificate. It may also need to disclose the compounding in its board’s report or public filings (if listed).
Timeline & Fee Structure
- Deadline for FC-GPR filing: Within 30 days from the date of issue/allotment of securities to a non-resident.
- Application fee for compounding: Under the older rules (2000 Rules), it was ₹5,000. Under the updated 2024 Rules, it’s raised to ₹10,000 excluding GST.
- Time for compounding order: Authority must issue the order within 180 days from receipt of the application.
- Penalty payment timeline: After the order, payment must typically be made within 15 days.
- Penalty amount calculation:
a. For FC-GPR late filing, the penalty could be 1% of the total investment (or minimum ₹5,000) per month (or part thereof) for the first six months, then double that after six months.
b. The compounding authority may assess other amounts, including fixed charges + variable slab, based on the amount of contravention. For example: base amount ₹10,000 + additional sums depending on amount involved (up to ₹10 lakh → ₹1,000 / year; 10-40 lakh → ₹2,500/year; etc), but this is more of a general guideline.
c. The compounding amount should not exceed 300% of the amount of contravention in some cases.
Key Considerations
When dealing with FC-GPR compliance and potential compounding, companies should pay attention to the following:
Eligibility & prior compliance history
- If a similar contravention was compounded in the last 3 years, the current one may not be eligible for compounding.
- If the company is under investigation by ED or other agencies (for example, for serious offences), then compounding may be refused.
- Contraventions where the amount cannot be quantified, or which relate to national security, money-laundering, etc, are typically non-compoundable.
Timing of applying
- The sooner the company identifies the contravention and applies, the better the prospects of a favourable outcome (lower penalty, less escalation risk).
- Delays increase the risk: the longer the delay in filing FC-GPR, the more serious the contravention may be viewed, and the higher the penalty may be.
- Note: The system (FIRMS portal) may restrict the filing of FC-GPR after a long delay or may generate errors; some practitioners suggest filing FC-GPR first and then applying for compounding. For example, a discussion thread noted:
Documentation & remedial action
- Full documentation supporting the foreign investment is critical: FIRC, KYC of remitter, board resolutions, valuation reports, share allotment details, etc. Missing documents may delay or jeopardise the application.
- Internal controls: The company must demonstrate that the delay was an oversight, not wilful non-compliance, and show that steps have been taken to prevent recurrence. This reduces adverse inference by authority.
Disclosure & transparency
- If the company is listed or planning to list/issue new, it must disclose in the prospectus/annual report any material regulatory non-compliance, including FC-GPR delays and compounding application status. As seen in some DRHPs and RHPs.
- While compounding is “confidential” in many cases, the fact of having applied or the outcome may need disclosure depending on listing rules or audit/legal requirements.
After compounding – monitoring & future compliance
- Once compounding is done, the company must ensure no repeat of similar contravention for at least 3 years (or risk non-eligibility).
- Ensure a robust compliance calendar and monitoring system for FDI and FC-GPR filing deadlines, including related forms such as FC-TRS (Foreign Transfer of Shares) and the FLA (Foreign Liabilities and Assets) return, among others.
Illustrative Example
Scenario:
An Indian company issues equity shares to a non-resident investor on 1 March 2024 for USD 1 million ( ₹8.3 crore). The company receives the funds, allocates shares, but fails to file Form FC-GPR within 30 days (i.e., by 31 March 2024). The company becomes aware of this oversight in October 2024.
Steps taken:
- In October 2024, the company immediately files the FC-GPR (albeit delayed) via the FIRMS portal, attaches all required documents (FIRC, KYC, board resolution, valuation if needed).
- The company then prepares a compounding application to the RBI Regional Office, explaining the delay (e.g., internal oversight, change of compliance personnel), attaching an audited balance sheet, a copy of the FC-GPR filed, FIRC, etc. The application fee (₹10,000) is paid.
- The application was submitted in November 2024. RBI may ask for additional information (say, details of fund remittance and allotment). The company supplies the same in January 2025.
- RBI issues a compounding order in March 2025 (within 180 days of application) saying the penalty to be paid = ₹2.5 lakh. The company pays within 15 days. Certificate of compounding is issued.
- The company records the compliance in its board minutes, informs its auditor, and strengthens its internal compliance calendar to avoid recurrence.
Best Practices for Prevention & Compliance
- Maintain a compliance calendar: Track issuance/allotment of shares to non-residents, date of receipt of funds, date of allotment, 30-day filing deadline for FC-GPR, 60-day allotment norms (if applicable), and subsequent returns (FC-TRS, FLA).
- Coordinate with your Authorised Dealer (AD) Bank and Company Secretary: The AD Bank is often involved in the FC-GPR process and its documentation; early coordination avoids delays.
- Document thoroughly: Ensure FIRC, KYC of remitter, board resolution, share allotment details, pricing/valuation (especially if not listed), route of investment, sectoral cap, etc.
- Train the compliance/finance team: Make them aware of foreign investment rules under FEMA, the deadlines, and forms.
- Immediate action if delay occurs: If you realise you are late in filing FC-GPR (or other returns), act immediately: file the form, document the delay, and engage your legal/compliance advisor about compounding if needed. The sooner the action, the better the outcome.
- Review internal controls after the fact: Understand how the lapse occurred (e.g., change in personnel, poor hand-off, oversight) and fix the root cause.
- Stay updated with regulatory changes: For example, the 2024 Rules for compounding introduced changes (higher application fee, digital payment mechanisms, etc).
- Disclosure and audit readiness: If you are a listed company or are about to raise capital, ensure that any past delays, compounding applications, or regulatory issues are appropriately disclosed in filings (prospectus, annual report) so that investors and regulators are informed.
Conclusion
The filing of Form FC-GPR is a key compliance step for Indian companies receiving foreign investment. While it seems routine, lapses (delays or non-filing) can trigger contraventions under FEMA, which carry penalty risk. The compounding mechanism provides a pragmatic and structured way to settle such contraventions — provided the company acts proactively, is transparent, and engages with the process properly.
Compounding should not be viewed as a substitute for robust compliance. It should ideally serve as a back-stop rather than a planned “fix” for poor processes. Improving internal controls, educating teams, maintaining documentation, and meeting deadlines will usually avoid the need for compounding altogether — a far better position for corporate reputation, costs, and ease of doing business.
If a company finds itself in a situation where Form FC-GPR or other related foreign investment forms have not been filed on time, it is prudent to seek specialist advice from company secretaries or legal and regulatory advisors experienced in FEMA and RBI compliance, to assess eligibility for compounding, quantify risks, prepare the application, and liaise with the authority.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
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