A friendly check isn't a legal nothing, it's an unclassified deposit
The instinct is that an informal SAFE or KISS is a lighter-weight way to take money before the paperwork of a priced round, so it feels lower-risk, not higher. Under Indian law it's the opposite. A SAFE promises future equity without fixing today's price; a KISS is a lightly modified version of the same idea. Neither is a share, a debenture, or any other capital instrument the Companies Act or FEMA actually defines. The cash still arrived, though, and Indian law asks what it was FOR. If it doesn't fit a recognised exemption, the answer defaults to the least friendly one: a deposit.
The only instrument that works, and only above three thresholds
India does have a bridge instrument built for exactly this situation, a Convertible Note. It only works if all three of these hold at once: your company carries current DPIIT recognition as a startup, the investment is Rs 25 lakh or more from that investor in a single tranche, and the note converts into equity or is repaid within 10 years of issue, a window doubled from the original 5 years by a 2020 amendment. Miss any one of the three and you're not looking at a smaller version of the same protection, you're outside it entirely.
| SAFE / KISS (as used abroad) | Convertible Note (India) | |
|---|---|---|
| Legal recognition | None under the Companies Act or FEMA | Companies (Acceptance of Deposits) Rules 2014 + FEMA NDI Rules 2019 |
| Who can issue it | Any company, informally | Only a DPIIT-recognised startup |
| Minimum size | None | Rs 25 lakh per investor, single tranche |
| Conversion window | Whatever the agreement says | Must convert or be repaid within 10 years |
| RBI filing | None | Form CN on FIRMS, within 30 days of receipt |
Below the floor, or before recognition, Section 73 is the real exposure
A friend's $15,000 wire is below the Rs 25 lakh floor. A company that hasn't yet applied for or received DPIIT recognition can't issue a compliant Convertible Note at all, whatever the amount. In either case, the receipt doesn't get to fall back on a smaller, informal version of the Convertible Note exemption, because that exemption doesn't have a smaller version. It falls back to Section 73, which treats an unclassified sum received by a company as a deposit unless it fits a specific carve-out. A company that isn't in the business of accepting public deposits, which describes essentially every startup, has no clean way to have taken one.
The FIRMS filing that makes it official
Getting the amount, timing, and DPIIT status right still isn't the last step. Once a non-resident investor's money is structured as a genuine Convertible Note, the company has to report it to RBI via Form CN, filed through its Authorised Dealer bank on the FIRMS portal, within 30 days of receiving the funds. This is the same kind of procedural, bank-facing gate this site describes elsewhere for other FEMA filings, missing it doesn't undo a properly structured note, but it leaves the company non-compliant on a filing that a later round's diligence will specifically ask to see.
What goes wrong without a CA
The recurring pattern: a founder takes a friendly, fast check from an overseas contact exactly because it feels simpler than a priced round, and nobody checks it against the Rs 25 lakh floor, the DPIIT recognition requirement, or the 10-year conversion window until a proper investor's lawyers ask about it months later. By then the money has often already been spent on the business it was meant to fund, and reclassifying it retroactively as a compliant Convertible Note isn't always possible, sometimes the honest fix is a lower-friction one, like actually returning and re-structuring the amount, than untangling it after the fact.