FAILURE TO FILE FORM DOWNSTREAM INVESTMENT (“DI”) BY FOCC WITHIN 30 DAYS OF ALLOTMENT OF SHARES TO A DOWNSTREAM SUBSIDIAR WILL ATTRACT PENALTY UNDER FEMA – CASE STUDY OF SOCIAL WORTH TECHNOLOGIES LIMITED

FAILURE TO FILE FORM DOWNSTREAM INVESTMENT (“DI”) BY FOCC WITHIN 30 DAYS OF ALLOTMENT OF SHARES TO A DOWNSTREAM SUBSIDIAR WILL ATTRACT PENALTY UNDER FEMA – CASE STUDY OF SOCIAL WORTH TECHNOLOGIES LIMITED

SUBSEQUENT INVESTMENTS MADE BY FOCC IN THEIR MATERIAL SUBSIDIARY WERE REQUIRED TO BE TREATED AS DOWNSTREAM INVESTMENTS, ATTRACTING FILING OF FORM DOWNSTREAM INVESTMENT (“DI”)

 FOREIGN-OWNED AND CONTROLLED COMPANY (“FOCC”) under FEMA NDI RULES. ALL SUBSEQUENT INVESTMENTS MADE BY FOCC IN THEIR MATERIAL SUBSIDIARY WERE REQUIRED TO BE TREATED AS DOWNSTREAM INVESTMENTS, ATTRACTING FILING OF FORM DOWNSTREAM INVESTMENT (“DI”) IN RESPECT OF SUCH DOWNSTREAM INVESTMENT.

KEY CONCEPTS

FOCC:

A company incorporated in India but owned/controlled by non-residents.

DOWNSTREAM INVESTMENT:

When such a FOCC invests in another Indian entity (its subsidiary or otherwise), that investment is considered indirect foreign investment.

FORM DI FILING:

Every downstream investment requires intimation to the Reserve Bank of India (RBI) through filing of Form Downstream Investment (DI).

COMPLIANCE REQUIREMENT

ONCE A COMPANY QUALIFIES AS FOCC:

Any subsequent investment it makes in its material subsidiary (or any other Indian company) is automatically treated as downstream foreign investment.

This triggers the obligation to file Form DI with RBI within the prescribed timeline (usually 30 days of the investment).

INDIAN INVESTEE COMPANY TO FILE FORM DI

The responsibility for filing lies with the Indian investee company receiving the downstream investment, not the FOCC itself.

CASE STUDY

DRHP FILED BY SOCIAL WORTH TECHNOLOGIES LIMITED DT JUNE 29 2026

Additionally, commencing from August 26, 2022, the aggregate shareholding of non-resident shareholders exceeded 50% of the issued, subscribed and paid-up share capital of our Company, THEREBY RESULTING IN CLASSIFICATION OF OUR COMPANY AS A FOREIGN-OWNED AND CONTROLLED COMPANY (“FOCC”) IN TERMS OF FEMA NDI RULES.

FAILURE TO FILE FORM DI

ACCORDINGLY, ALL SUBSEQUENT INVESTMENTS MADE BY OUR COMPANY IN OUR MATERIAL SUBSIDIARY WERE REQUIRED TO BE TREATED AS DOWNSTREAM INVESTMENTS, ATTRACTING FILING OF FORM DOWNSTREAM INVESTMENT (“DI”) IN RESPECT OF SUCH DOWNSTREAM INVESTMENT. Such filing of form DI was required to be made within 30 days of each of the allotment of equity shares for our downstream investments in our Material Subsidiary, pursuant to Regulation 11 of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.

A LATE SUBMISSION FEE OF ₹2.39 MILLION

Basis the internal compliance review by our Material Subsidiary, it had identified delays in filing of form DI and rectified the corresponding reporting in relation to DOWNSTREAM INVESTMENTS MADE BY OUR COMPANY IN OUR MATERIAL SUBSIDIARY BETWEEN SEPTEMBER 2022 AND OCTOBER 2025 FOR WHICH IT WAS REQUIRED TO PAY A LATE SUBMISSION FEE OF ₹2.39 MILLION.

FILING OF COMPOUNDING APPLICATION FOR NOT FILING FORM DI WITHIN 30 DAYS OF ALLOTMENT OF SHARES TO SUBSIDIARIES.

IN THIS REGARD, OUR COMPANY HAS FILED A COMPOUNDING APPLICATION DATED JUNE 17, 2026, with the RBI in relation to the downstream investments made and the corresponding delay in filing Form DI. The application is currently pending before the RBI"

WHY THIS MATTERS?

·       Ensures transparency in tracking indirect foreign investment flows.

·       Helps RBI monitor compliance with sectoral caps, entry routes (automatic vs. approval), and other FEMA regulations.

·       Non-compliance (failure to file Form DI) can attract penalties under FEMA.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,