Mr. A, a foreign national and non-resident under FEMA, and Mr. B, a resident Indian, decided to incorporate a private limited company in India (AB Private Limited) to carry on Mr. A’s global business operations within India. During the initial capital contribution process, Mr. A transferred his share of investment funds to Mr. B’s personal bank account. Subsequently, Mr. B deposited the entire amount into the company’s bank account, and the company allotted shares to Mr. A and Mr. B in the agreed proportion.
Given this background:
1. Does this method of routing foreign investment (via Mr. B's personal account) constitute a violation of FEMA regulations, particularly concerning the mode of receipt of foreign investment?
2. What are the regulatory implications and risks involved in such a transaction?
3. What corrective actions or compliance measures (such as FEMA compounding or reporting) should the company and the shareholders undertake to regularize the situation?
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