A founder closes a $250,000 angel round from a Singapore-based investor. The money lands in the company account in March. The board passes the allotment resolution, the share certificates go out, the cap table gets updated in the data room, and everyone moves on to building the product. Eleven months later, a Series A investor's diligence team asks for the FC-GPR acknowledgement. Nobody has one. Nobody filed it.
This is the single most common FEMA failure in Indian startups, and the reason it is so common is that nothing breaks when you miss the deadline. No portal locks you out. No notice arrives. The RBI does not email you. The contravention simply sits on the company's file, compounding quietly, until a diligence team, a bank, or an auditor finds it — usually at the worst possible moment.
What the law actually requires
Foreign investment into an Indian private limited company is governed by the Foreign Exchange Management Act, 1999, read with the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and the RBI's Master Direction on Reporting under FEMA. Two reporting obligations catch almost every startup.
Form FC-GPR must be filed when an Indian company issues shares or other eligible instruments to a person resident outside India. The filing window is 30 days from the date of allotment — not from the date the money arrived, not from the date the share certificates were signed. The board resolution date allotting the shares starts the clock. FC-GPR is filed on the RBI's FIRMS portal (firms.rbi.org.in) through the company's AD Category-I bank, and requires a CS certificate and a valuation certificate from a merchant banker or chartered accountant establishing that the price is not below fair value as computed under an internationally accepted pricing methodology.
Form FC-TRS applies when shares move between a resident and a non-resident — either direction. A founder selling secondary to a foreign fund, or a foreign investor exiting to an Indian buyer, both trigger it. The window is 60 days from the date of transfer or the date of receipt or remittance of consideration, whichever is earlier. That "whichever is earlier" clause is frequently missed: if money moves before the share transfer form is executed, the clock started when the money moved.
Separately, every company that has received FDI must file an annual FLA return (Foreign Liabilities and Assets) by 15 July each year, covering the financial year ended 31 March. A company with foreign shareholding that has never filed FLA has a separate, recurring contravention for each year missed.
Non-compliance with any of these is a contravention of Section 6(3) read with the relevant rule, and is punishable under Section 13 of FEMA — up to three times the sum involved where the amount is quantifiable, or ₹2 lakh where it is not, plus ₹5,000 per day for continuing contraventions.
Practical implications: what actually happens
In practice, the RBI does not prosecute a late FC-GPR. It offers two off-ramps, and which one is available to you depends almost entirely on how long you have waited.
Route one — Late Submission Fee (LSF). For delays up to three years, the RBI permits regularisation on payment of a formula-driven fee, with no hearing, no adjudication, and no finding of contravention recorded against the company. The formula is:
LSF = ₹7,500 + (0.025% × A × n)
where A is the amount involved in the delayed reporting, and n is the number of years of delay (rounded up, with part of a year treated as a full year). The total LSF is capped at 100% of A.
Work through the example above. A ₹2.1 crore allotment (roughly $250,000) reported eleven months late is a one-year delay. LSF = ₹7,500 + (0.025% × 2,10,00,000 × 1) = ₹7,500 + ₹5,250 = ₹12,750. That is the entire cost of the mistake, provided it is caught inside three years. The AD bank collects it, the FIRMS filing is accepted, and the matter closes.
Route two — compounding under Section 15. Once the delay crosses three years, LSF is no longer available. The company must apply to the RBI for compounding under Section 15 of FEMA, 1999, read with the Foreign Exchange (Compounding Proceedings) Rules, 2024, which came into force on 12 September 2024 and replaced the 2000 Rules.
Compounding is a formal, adjudicated process. The company admits the contravention in writing, the RBI issues a reasoned compounding order quantifying a sum, and that order — which names the company and its directors, and describes the contravention — becomes a public document on the RBI website. That is the real cost. The money is usually modest; the paper trail is not. A published compounding order is something every future investor's diligence team will find, and something you will disclose in every subsequent share purchase agreement's representations and warranties.
The 2024 Rules raised the application fee from ₹5,000 to ₹10,000 plus GST, payable by NEFT, RTGS or demand draft, and significantly widened the monetary authority of RBI officers: an Assistant General Manager may now compound contraventions where the amount involved is below ₹60 lakh (previously ₹10 lakh), a Deputy General Manager up to ₹2.5 crore, a General Manager up to ₹5 crore, and a Chief General Manager above ₹5 crore. Under Rule 8, the compounding authority must pass its order within 180 days of receiving a complete application, and under Rule 9 the compounded amount must be paid within 15 days of the order. Miss that 15-day window and the application is treated as though it was never made — you are back to square one, exposed to adjudication under Section 13.
Three further consequences founders underestimate. First, the company cannot raise further FDI cleanly while an unreported allotment sits on the file — the AD bank will flag the entity in FIRMS, and the next FC-GPR will not be approved until the prior one is regularised. Second, statutory auditors must report FEMA non-compliance, which surfaces in the audit report and, for companies covered, in CARO reporting. Third, contraventions found to be wilful, mala fide or fraudulent are excluded from compounding entirely under Rule 11 and are referred to the Directorate of Enforcement — a genuinely different category of problem.
Step-by-step: what to do
- Build the register today. List every allotment to a non-resident and every share transfer crossing the resident/non-resident line since incorporation, with the board resolution date or transfer date for each. This takes an afternoon and tells you exactly where you stand.
- Classify each item by delay. Under 30 days for FC-GPR (or 60 for FC-TRS): file now, no fee. Between the deadline and three years: LSF route. Over three years: compounding route.
- For the LSF route, compute the fee using ₹7,500 + (0.025% × A × n), approach your AD Category-I bank, and file the delayed form on FIRMS with the LSF request. Attach the FIRC, KYC from the remitting bank, the board resolution, the valuation certificate, and the CS certificate. Pay the LSF on the bank's demand — the acknowledgement is your closure document.
- For the compounding route, file Form 1 under the 2024 Rules with the Regional Office of the RBI holding jurisdiction over your registered office (or Central Office where the amount exceeds ₹5 crore), along with the ₹10,000 + GST fee, an undertaking that no ED investigation is pending, and a full factual chronology. Do not minimise or obscure the delay — the RBI's stated approach treats voluntary, complete and candid disclosure as a mitigating factor in quantifying the sum.
- Attend the personal hearing — it is optional in law but, in practice, appearing through a CA or company secretary who can answer the officer's questions on the spot shortens the process materially.
- Pay within 15 days of the order and retain the compounding certificate permanently. You will be asked for it in every future diligence.
- Prevent recurrence. Put the 30-day FC-GPR clock into the board resolution template itself: no allotment resolution is signed without a named owner and a calendared filing date. Add FLA (15 July) and APR to the annual compliance calendar alongside AOC-4 and MGT-7A.
FAQ
Can we just file the FC-GPR late and hope no one notices?
No. FIRMS records the allotment date you enter and computes the delay automatically. The AD bank cannot process a delayed filing without either an LSF payment or a compounding order. There is no path that avoids both.
Does the three-year LSF limit run from the allotment date or from when we discovered the mistake?
From the date the reporting fell due — the 30th day after allotment for FC-GPR, the 60th day for FC-TRS. Discovery is irrelevant. This is why the register in step one is urgent: a delay at 2 years and 10 months costs a few thousand rupees; the same delay at 3 years and 1 month costs a public compounding order.
Do the directors face personal liability?
Section 42 of FEMA makes every person who was in charge of and responsible to the company for the conduct of its business liable alongside the company, unless they prove the contravention occurred without their knowledge or that they exercised due diligence. In a compounding order, directors are typically named as co-applicants.
We missed FLA for three consecutive years. Is that one contravention or three?
Three. Each year's non-filing is a separate contravention with its own amount involved and its own delay period. They can be compounded together in a single application, but they are priced separately.
For a compliance audit of your company, visit pvtltd.co
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See Also
- Investing in a foreign subsidiary without RBI approval: What the ODI rules actually require
- "We'll just wire money to our Dubai entity": What ODI rules actually require before an Indian company invests abroad
- "We'll just file Form ODI Part I": what FEMA actually requires when your Indian company invests abroad
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