One LLP having un hedged foreign currency exposure is obtaining auditor's certificate mentioning that as parent unlisted public ltd Co has taken hedge position, it has not hedged. Can Group Companies involving LLP & CO could do it lawfully, as partners of llp and members of Co are not commo- hardly 60% common.
Please guide
Hi Jayanta,
Your question relates to unhedged foreign currency exposure (FCE) and the practice of group companies — specifically an LLP and a parent unlisted public company — handling hedging at the group level rather than individually.
Unhedged Foreign Currency Exposure Certificate:
The Reserve Bank of India (RBI) requires entities to obtain a certificate from their statutory auditor or cost auditor confirming the status of unhedged foreign currency exposure (FCE).
This certificate is often required for regulatory or compliance purposes, e.g., for loans, ECBs, or FEMA compliance.
Hedging by Group Companies:
Typically, each legal entity is expected to manage its own foreign currency risk and obtain the auditor’s certificate individually.
However, some group companies do hedge their foreign currency risk at the consolidated/group level, especially when entities are closely held or effectively integrated financially.
This can allow one entity (e.g., the parent company) to hedge the combined exposure of the group.
Can LLP and Company hedge jointly if partners/members overlap only ~60%?
The LLP and the parent company are separate legal entities.
Common ownership of 60% may indicate control or significant influence, but they are still independent.
RBI/FEMA guidelines do not explicitly permit an LLP to rely on the parent company’s hedge for its own unhedged exposure certificate.
Generally, the auditor’s certificate for unhedged exposure must pertain to the entity’s own exposure and hedging.
The fact that partners and members overlap partially (~60%) does not automatically merge their exposures.
Legal and compliance risks:
Relying on the parent company’s hedge to claim “no unhedged exposure” for the LLP may not be accepted by RBI or other regulatory authorities.
Each entity should maintain its own risk management and get a certificate accordingly.
In case of an audit or regulatory scrutiny, this approach might be challenged.
What to do practically?
The LLP should maintain its own foreign currency exposure records.
If the LLP does not hedge its exposure, it must report that as unhedged in its certificate.
If the group wants to hedge exposure at the group level, inter-company arrangements (like loans or forward contracts between entities) need to be structured properly.
Consider getting a legal/regulatory opinion if you want to pursue group-level hedging formally.
The unhedged FCE certificate must reflect the individual entity’s exposure and hedging.
Partial common ownership is not sufficient to allow LLP to rely on parent company’s hedge.
For compliance and audit, treat LLP and company exposures separately.
CAclubindia
