RBI Compounds FEMA Violation by Myntra: Why Annual Performance Reports Matter
The Reserve Bank of India (RBI) recently issued a compounding order in the case of Myntra Designs Private Limited for violations under the Foreign Exchange Management Act (FEMA). The matter involved a delay in filing the Annual Performance Report (APR) for an overseas investment and making an additional overseas investment commitment before completing the required APR filing. The case highlights the importance of timely reporting for Indian entities that invest abroad.
What is an Annual Performance Report (APR)?
When an Indian company or resident makes an Overseas Direct Investment (ODI) in a foreign company, FEMA requires periodic reporting to the RBI through an Authorised Dealer (AD) Bank. One of the key reporting requirements is the Annual Performance Report (APR).
The APR provides information about the financial performance, ownership structure, and activities of the foreign entity in which the Indian investor has invested. It helps regulators monitor overseas investments and ensures that such investments remain compliant with India’s foreign exchange laws.
Generally, an APR must be filed every year for each foreign entity in which ODI has been made. The report is required to be submitted by 31 December each year and must usually be based on the audited financial statements of the foreign entity.
Why is APR Filing Important?
Under the earlier ODI framework of 2004, an Indian party could make further overseas investments only if it had submitted APRs for all its existing overseas investments. In simple terms, a company was expected to complete its reporting obligations before making additional overseas commitments.
The current Overseas Investment Regulations, 2022 continue to place significant importance on APR compliance. The reporting requirement remains applicable until the investment is held, subject to limited exceptions.
Failure to file APRs on time can result in FEMA contraventions and may lead to regulatory action, including compounding proceedings. The Myntra case serves as a reminder that reporting obligations are not mere formalities; they are an essential part of the ODI compliance framework.
Key Points Businesses Should Remember
- APR must generally be filed every year for each foreign entity in which ODI has been made.
- The report should normally be based on audited financial statements of the foreign entity.
- If multiple Indian investors have invested in the same foreign entity, the investor holding the highest stake is generally responsible for filing the APR.
- Changes such as acquisition, transfer, winding up of subsidiaries, or changes in shareholding should be properly reported.
- APR filing is generally not required where the Indian investor holds less than 10% equity without control and has no other financial commitment, or where the foreign entity is under liquidation.
- Companies should ensure that all previous years’ APRs have been filed before undertaking further overseas investment transactions.
The RBI’s action in the Myntra matter underscores a broader compliance lesson: overseas investments do not end with remitting funds. Continuous reporting and timely filing of APRs are critical to maintaining FEMA compliance and avoiding regulatory consequences.
The order is available here.
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