FDI Structuring and RBI Approval for a Gurgaon Fintech
End-to-end FEMA and RBI approval advisory for a Series B investment into a payments technology company — navigating the fintech sector cap, payment aggregator licensing requirements, and FEMA reporting obligations.
Practice Areas Involved
The Challenge
A Gurgaon-based payments technology startup received a Series B term sheet from a US-based venture fund for ₹180 crore (approximately US$21 million). The investment raised several intersecting regulatory issues. The company held a payment aggregator licence under the RBI Payment Aggregator Master Directions — a regulated activity where the 49% FDI cap applied and the investor's proposed shareholding post-investment would bring aggregate foreign ownership to 51.4%. Additionally, the company had two wholly owned subsidiaries carrying out data processing activities, and the DPDP Act 2023 data localisation requirements for financial data added a compliance dimension to the structure.
The timeline was constrained: the US fund had a limited 120-day deployment window from its LP close, and a multi-month RBI approval process threatened to blow the deadline.
Our Approach
We designed a two-class share structure using CCPS with a differential foreign ownership calculation approach consistent with recent MCA and RBI guidance — bringing the effective foreign ownership percentage to 48.9% for regulatory purposes while preserving the economic rights of the US fund consistent with the agreed term sheet economics.
We filed the RBI approval application under the Payment Aggregator Directions with a detailed legal memorandum addressing the sector cap compliance, beneficial ownership disclosures, and fit and proper criteria for the US fund's principals. Parallel FEMA filings (FC-GPR for the CCPS issuance and the requisite RBI intimation) were prepared in advance of RBI approval to compress post-approval completion time.
For the data subsidiary structure, we advised on a data processing agreement between the licensed entity and the subsidiaries that compartmentalised financial data processing in an RBI-compliant manner, addressing potential DPDP Act transfer restriction concerns through contractual safeguards.
The Result
RBI approval was obtained in 78 days — within the fund's deployment window. FEMA filings were completed within five working days of RBI clearance. The Series B round closed on schedule. The data processing structure was accepted by the RBI as part of its fit and proper assessment without conditions. The company subsequently received clean opinions from its statutory auditors on the foreign investment structure.
Key Lessons
- ◆Payment aggregator FDI structures require careful CCPS instrument design — the economic and regulatory ownership percentage can be legitimately aligned through instrument structuring with proper legal support.
- ◆Parallel preparation of post-approval FEMA filings during the RBI approval period is essential for meeting tight deployment timelines.
- ◆Data processing subsidiary structures for fintech companies must now be evaluated against both FEMA and DPDP Act frameworks simultaneously.
- ◆Early, voluntary disclosure in RBI approval applications — rather than a minimal compliance approach — consistently produces faster processing and fewer queries.
Facing a similar challenge?
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