1. Governing Framework under FEMA and RBI

• Foreign Direct Investment (FDI) in Public Limited Companies is regulated under the Foreign Exchange Management Act (FEMA), 1999, and administered by the Reserve Bank of India (RBI).
  
• FDI is also guided by the FDI Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT).
  
• Public Limited Companies can receive foreign investment either through the automatic route (no prior government approval) or the government route, depending on the sector.
  

2. Routes of FDI Entry

• Automatic Route: No prior approval required; applicable to most sectors like manufacturing, services, IT, telecom (up to specified limits).
  
• Government Route: Prior approval needed from the concerned ministry; applies to sectors like defense, print media, and multi-brand retail.
  
• The consolidated FDI policy lists sector-specific caps and entry conditions.
  

3. Instruments and Compliance

• FDI can be received through:
  
  • Equity shares
    
  • Compulsorily convertible debentures (CCDs)
    
  • Compulsorily convertible preference shares (CCPS)
    
• Allotment of securities must comply with:
  
  • Companies Act, 2013
    
  • Pricing guidelines prescribed by the RBI (based on fair market value)
    
  • SEBI regulations, in the case of listed companies
    
• All FDI transactions must be reported to the RBI via Form FC-GPR (for allotment) and Form FC-TRS (for transfer of shares) through the Single Master Form (SMF) on the RBI’s FIRMS portal.
  

4. Sectoral Caps and Ownership Limits

• FDI is allowed up to 100% in many sectors, but some have caps, such as:
  
  • Defense manufacturing: 74% automatic, 100% with government approval
    
  • Insurance: 74%
    
  • Private sector banking: 74%
    
  • Multi-brand retail trading: 51% with approval
    
• Public Limited Companies must monitor aggregate foreign shareholding to avoid a breach of sectoral limits.
  

5. Ongoing Obligations and Restrictions

• Public Limited Companies receiving FDI must:
  
  • Update their shareholding structure with the ROC and RBI.
    
  • Ensure foreign investors comply with KYC and anti-money laundering regulations.
    
  • Maintain board approval for issuing shares to foreign investors.
    
  • File annual FLA return with RBI regarding foreign liabilities and assets.
    
  • Adhere to exit conditions and lock-in periods (where applicable)