Standard Operating Procedure for Processing Foreign Direct Investment Proposals

INTRODUCTION

The Department of Promotion of Industry and Internal Trade (“DPIIT”) has issued standard operating procedurefor processing Foreign Direct Investment (“FDI”) vide Circular No. 1/8/2016-F.C.I. dated August 17, 2023 (“SOP”)ⁱ. This SOP essentially replaces theerstwhile standard operating procedure issued by the DPIIT on November 9, 2020 (“Erstwhile SOP”)ⁱⁱ and outlines the new procedure and timelines for filing and processing of FDI proposals.

BACKGROUND

The Erstwhile SOP, which had replaced the earlier standard operating procedure issued by DPIIT dated June 29, 2017,replaced the concept of Foreign Investment and Promotion Board (“FIBP”) withthe Administrative Ministries/Departments (“Competent Authority”)ⁱⁱⁱ to deal with the FDI proposals. Under the ErstwhileSOP, FDI applications were permitted to be filed in both online and physical mode wherein, the online applications were filed through the Foreign Investment Facilitation Portal (“FIF Portal”).. Furthermore, under the ErstwhileSOP, the document scrutiny was relatively more relaxed and there were limited compliance requirements as compared to those requiredunder this SOP.

The following are the key highlights of the SOP:

1. National Single Window System (“NSWS”)

   
   

   The consolidated FDI Policy dated October 15, 2020 (“FDI Policy”) and Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 dated October 17, 2019 (“FEM (NDI) Rules”) require the approval of thegovernment in respect of any foreign investment proposal. These proposals are required to be filed virtually with the aid of NSWSwherein, the applicant would be required to digitally upload the requisite documents such as the letter of authorization, summary of FDI proposal, etc., (as listed out under Annexure-I of the SOP). The FDI proposals on the FIF Portal shall continue to be examined by the Competent Authority.

2. Paperless and Expedient Application Process

   One of the primary objectivesof the SOP is to make the process of filing the FDI applications entirely paperless. However, in case of any doubt in respect of the authenticity of the scanned copy, the physical copies of the original documentsmay be sought by theCompetent Authority, with the approval of the concerned secretary. The foreign investments are required to be approved by the respective Competent Authorityonly and not through any replicate body. Furthermore, the FDI proposals should be executed in a simple manner and shall be disposed expeditiously.

3. Procedure and Timelines forProcessing and Approval of Applications
   
   

   Once the FDI proposal is filed online, the DPIIT shall identify and assign the same to the Competent Authority within 2 (two) days^iv. Thereafter, the Competent Authority shall process the proposals and seek post-facto approvals^v. The DPIIT is also required to circulate the FDI proposals online to-

   1. Reserve Bank of India (“RBI”) within 2 (two) days^vi ,for reverts as required under the Foreign Exchange Management Act, 1999 (“FEMA”) and the relevant rules and regulations thereunder.
   
   
   2. the Ministry of Home Affairs (“MHA”) in respect of those proposals requiring security clearance, within 2 (two) days^vii ,for comments.
   
   
   3. the Ministry of External Affairs (“MEA”) within 2 (two) days^viii , for information and comments.
   
   
   The Competent Authority would thereafter directly receive all the comments received from RBI, MHA and MEA.
   
   As per the FDI Policy, the applicant is required to file a Security Clearance Form^ix in respect of the following proposals, which shall be circulated to the MHA as mentioned hereinabove:
   
   
   1. Investments in the domain of broadcasting, telecommunication, satellites involving establishment and operation, private security agencies, defence, civil aviation and mining, mineral separation of titanium bearing minerals and ores, its value addition and integrated activities.
   
   
   2. Applications under Press Note 3 of 2020 dated April 17, 2020, read with Foreign Exchange Management (Non-Debt Instruments) Amendment Rules, 2020 dated April 22, 2020.

   Any clarification required in the FDI proposals from the point of view of the FDI Policy may be referred to DPIIT with the approval of the secretary of the Competent Authority, thereby making consultation with DPIIT need-based, rather than a routine requirement.In case any clarification is sought from the DPIIT on specific issues of the FDI Policy, the said clarifications shall be submitted by the DPIIR within a period of 4 (four) weeks from the receipt of FDI proposal by the DPIIT^x .However, justification as well as approval of the Competent Authority would be required for consultation with any other ministry/department.
   
   The Competent Authority being consulted, including RBI, MHA and MEA are required to provide their comments within a timeframe of 8 (eight) weeks from the receipt of FDI proposal by the DPIIT^xi . If no comments are received within the said timeline, then it would be presumed that there are no comments in this regard. MHA has, however, been provided with flexibility to intimate the expected time within which comments may be provided, in case the same cannot be given within the prescribed period.
   
   The FDI proposals and attached documents are required to be scrutinized by the Competent Authority within a period of 2 (two) weeks from the receipt of FDI proposal by the DPIIT^xii , and in case any additional documents are required, the same can be sought from the applicant through the FIF Portal, within the said timeline.While examining the FDI proposals, the Competent Authority shall take into account the FDI Policy, press notes, notifications/ guidelines pertaining to FEMA or as may be issued by RBI from time to time, the sectoral requirements and sectoral policies.The Competent Authority shall, within a period of 12 (twelve) weeks from the receipt of FDI proposal by the DPIIT^xiii , take a decision on the FDI proposals and convey the same to the applicant and other consulted bodies through the FIF Portal.
   
   An inter-ministerial committee,comprising of Secretaries from DPIIT, Department of Economic Affairs, Ministry of Corporate Affairs, MHA,concerned Competent Authority and representatives from RBI and NITI Aayog has been constituted to process FDI proposals,appropriately decide on the delayed FDI proposals and the ones escalated by the processing Competent Authority for quicker disposal.Furthermore, proposals involvinga total foreign equity inflow of over INR 5000,00,00,000(Rupees Five Thousand Crores Only)^xiv, must be placed for consideration of Cabinet Committee on Economic Affairs (“CCEA”), and comments shall be submitted by the CCEA within a period of8(eight)weeks from the receipt of FDI proposal by the DPIIT^xv and a letter conveying the decision is to be issuedwithin a period of1 (one) week.
   
   Further, the SOP clarifies that an application filed through NSWS to amend the earlier approvals would be regarded as valid and there would be no necessity for filing a fresh application.



4. Closure of application
   
   

   The Competent Authority has the authority to close any incomplete FDI applicationswhere the applicant hasnot provided the requisite documents in correct format or has not reverted to the queriesin spite of repeated reminders, after giving a final reminder. However, such closure would not be regarded as rejection and the applicant would be permitted to re-apply with requisite documents. The secretary of the concerned administrative ministry/body would be regarded as the competent authority for this purpose.



5. Rejection of proposals or additional conditions
   
   

   In case the Competent Authority proposes to reject an FDI proposal or stipulates conditions in addition to the FDI Policy or sectoral laws and regulations, the concurrence of DPIIT shall be duly sought, with the approval of the concerned secretary. In such cases where proposals are proposed to be rejected or additional conditions are proposed to be imposed by the Competent Authority, an additional timeline of 2 (two) weeks shall be given to DPIIT for consideration.
   
   The secretary, DPIIT shall be regarded as the competent authority for decision making on cases referred by other administrative ministries or departments and for the purpose of seeking concurrence of DPIIT on rejection of proposal and insertion of additional conditions.It has been clarified under the SOP that for theinsertion of conditions on compounding under the FEMA or any existing laws or court orders, the consent of the DPIIT shall not be required. A rejection letter issued by the Competent Authority shall be copy-marked to all consulted bodies, including the ministries, departments and regulatory agencies.



6. Withdrawal of applications
   
   

   The FDI proposal pending for decision, may be withdrawn by the applicant through submission of a duly authorized letter of withdrawal. The withdrawal letter shall be addressed to the Competent Authority and copy-marked to DPIIT, and shall clearly state the reasons for withdrawal. The Competent Authority is required to acknowledge the withdrawal request on the NSWS portal, pursuant to which the FDI proposal would stand as withdrawn.

7. Approval letter

   The Competent Authority is required to issue an approval letter to the respective applicant for approval of the proposal^xvi. However, in case the applicant wishes to surrender the approval letter which has been granted to the investee entity/ investor, the applicant shall submit a declaration in originalwhich has been signed by the authorized representative and is addressed to the concerned Competent Authority, clearly stating the reasons for surrender, pursuant to which such surrender may be accepted by the Competent Authority. Furthermore, an acknowledgement with respect to the surrender of the approval needs to be sent to the applicant and copy-marked to the consulted agencies.
   
   In case of any grammatical or typological errors in the approval letter, the same can be rectified on request of the applicant and after necessary due diligence. The Competent Authority may issue corrigendum to that effect after due approval of the concerned secretary^vii.

8. Penalty

   The penal provisions under the FEMA govern any violation of FDI regulations. The framework for compounding of contraventions has also been specifically laid down under the FDI Policy^xviii ,Section 15 of FEMA and Foreign Exchange (Compounding Proceedings) Rules, 2000. While determining any issue of violation, the Competent Authority is advised to refer to the Master Direction- Compounding of Contraventions issued by RBI^xix.

9. Monitoring and review

   The ministry/department is required to have a dedicated FDI cell with a nodal officer with at least the rank of Joint Secretary. Further, the SOP lays down a requirement forregular review meetings to be conducted by the secretary, DPIIT, with the concerned administrative ministry/department at a periodic interval of every 4 (four) to 6 (six) weeks to oversee the pendency of FDI proposals.

CONCLUSION

The SOP eliminates the option of physical applications of FDI proposals and transforms the application process into a digital and paperless endeavor.This initiative aims to resolve significant procedural challenges by introducing a single clearance window, namely the NSWS portal.Additionally, the SOP facilitates the correction of errors in the approval letter within a minimal timeframe. Due to the strict timelines laid down under the SOP, the entire time for processing FDI proposals has been restricted to a period of 12 (twelve) weeks, thereby making the process simple and quick. The establishment of a dedicated FDI cell within each Competent Authority is also anticipated to notably diminish the extent of DPIIT’s engagement.In essence, the SOP strives to enhance the efficiency of the entire FDI proposal clearance process and elevates the nature of scrutiny, thereby underscoring a balanced approach to regulatory oversight.