Transfer of Shares:

The price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by the Reserve Bank from time to time, where the issue of shares is on preferential allotment

Retention of Amount in Foreign Currency Account :

Indian companies which are eligible to issue shares to persons resident outside India under the FDI Policy may be allowed to retain the share subscription amount in a Foreign Currency Account, with the prior approval of RBI.

A. Process of Transfer of shares:

Subject to FDI sectoral policy (relating to sectoral caps and entry routes), applicable laws and other conditionalities including security conditions, non-resident investors can also invest in Indian Companies.

  • By purchasing/acquiring existing shares from Indian shareholders.
  • By purchasing/acquiring existing shares from other non-resident Shareholders

Condition:
General permission has been granted to non-residents/NRIs for acquisition of shares by way of transfer subject to the following:-

i. Transfer from Non- Resident to another Non- Resident: A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs).

  • Without Government Approval: Government approval is not required in sectors which are under automatic route.
  • Without Government Approval: Government approval is required in which are under Government approval route.

Other Situations:

  • NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.
  • A person resident outside India can transfer any security to a person resident in India by way of gift. A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI.

ii. Transfer from Resident to Non- Resident:

A person resident in India can transfer by way of sale, shares/ convertible debentures (including transfer of subscriber’s shares), of an Indian company under private arrangement to a person resident outside India, subject to the guidelines given in para 5.2 and Section 1 of this Annexure of FDI Policy (Discussed below in detail).

General Permission:

General permission is also available for transfer of shares/convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India, subject to the guidelines given in para 5.2 and Section 1 of this Annexure.

The above General Permission also covers transfer by a resident to a non-resident of shares/convertible debentures of an Indian company, engaged in an activity earlier covered under the Government Route but now falling under Automatic Route, as well as transfer of shares by a non-resident to an Indian company under buyback and/or capital reduction scheme of the company.

Sale Consideration: The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a Know Your Customer (KYC) check by the remittance receiving AD Category-I bank at the time of receipt of funds. In case, the remittance receiving AD Category-I bank is different from the AD Category-I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category-I bank carrying out the transaction along with the Form FC-TRS.

B. Terms and conditions

For Transfer of Shares/Convertible Debentures, by way of Sale, from a Person Resident in India to a Person Resident outside India (i.e. to foreign national, NRI, FII, FPI and incorporated non-resident entity other than erstwhile OCB):

i. Parties Involved:

  • Seller (resident)
  • Buyer (non-resident)
  • Duly authorized agent/s of the seller and/or buyer,
  • Authorized Dealer bank (AD) branch
  • Indian company, for recording the transfer of ownership in its books

ii. Pricing Guidelines:

Price of shares transferred by way of sale by resident to a non-resident where the shares of an Indian company are:-

  • Listed: – Listed on a recognized stock exchange in India shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines. Condition: the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares
  • Non- Listed: – Not Listed on a recognized stock exchange in India shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on arm’s length basis.

Condition: The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant

iii. Responsibilities / Obligations of the parties: All the parties involved in the transaction would have the responsibility to ensure that

  • the relevant regulations under FEMA are complied with and
  • Consequent on transfer of shares, the relevant individual limit/sectoral caps/foreign equity participation ceilings as fixed by Government are not breached.
  • Settlement of transactions will be subject to payment of applicable taxes, if any.

iv. Method of payment and remittance/credit of sale proceeds :

  • Non Resident: The sale consideration in respect of the shares purchased by a person resident outside India shall be remitted to India through normal banking channels.
  • FII & FPI: In case the buyer is a FII,FPI, payment should be made by debit to its Special Non-Resident Rupee Account.
  • NRI: In case the buyer is a NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts.

However, if the shares are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal banking channel or paid out of funds held in NRE/FCNR (B)/NRO accounts.

v. Documentation Involved:-

  • Form: The Form FC-TRS (in quadruplicate) should be submitted to the AD Category-I Bank, within 60 days from the date of receipt of the amount of consideration.
  • Onus of Submission: The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India.
  • Share of Listed Company: However, in cases where the NR investor, including an NRI, acquires shares on the stock exchanges under the FDI scheme, the investee company would have to file form FC-TRS with the AD Category-I bank.

Other Documents: Besides obtaining a declaration in the enclosed Form FC-TRS (in quadruplicate), AD branch should arrange to obtain and keep on record the following documents:

S. No.Document NameBrief Particular of Document
1. Consent LetterConsent Letter duly signed by the seller and buyer or their duly appointed agent indicating the details of transfer i.e.

– number of shares to be transferred

– The name of the investee company whose shares are being transferred

– The price at which shares are being transferred

 

2. Letter ExchangedIn case there is no formal Sale Agreement, letters exchanged to this effect may be kept on record.
3. Power of AttorneyWhere Consent Letter has been signed by their duly appointed agent, the Power of Attorney Document executed by the seller/buyer authorizing the agent to purchase/sell shares.

 

4. Share Holding PatternThe shareholding pattern of the investee company after the acquisition of shares by a person resident outside India showing

– equity participation of residents and non-residents category-wise

– its percentage of paid up capital obtained by the seller/buyer or their duly appointed agent from the company where the sectoral cap/limits have been prescribed

5. Valuation CertificateCertificate indicating fair value of shares from a Chartered Accountant.
6. Broker NoteCopy of Broker’s note if sale is made on Stock Exchange.
7. Undertaking from the buyerUndertaking from the buyer to the effect that he is eligible to acquire shares/convertible debentures under FDI policy and the existing sectoral limits and Pricing Guidelines have been complied with.
8. Undertaking from the FIIUndertaking from the FII/sub account to the effect that the individual FII/ Sub account ceiling as prescribed by SEBI has not been breached, till it gets registered as FPI.

Reporting requirements:

i. When the transfer is on private arrangement basis, on settlement of the transactions, the transferee/his duly appointed agent should approach

  • The investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee.
  • On receipt of the certificate from the AD, the company may record the transfer in its books.

ii. The actual inflows and outflows on account of such transfer of shares shall be reported by the AD branch in the R-returns in the normal course.

iii. On receipt of statements from the AD, the Reserve Bank may call for such additional details or give such directions as required from the transferor/transferee or their agents, if need be

For Transfer of Shares/Convertible Debentures, by way of Sale, from a Person Resident outside India to a Person Resident in India(i.e. by incorporated non-resident entity, erstwhile OCB, foreign national, NRI, FII, FPI):

i. Parties Involved:

  • Seller (Non- Resident)
  • Buyer (Resident)
  • Duly authorized agent/s of the seller and/or buyer,
  • Authorized Dealer bank (AD) branch
  • Indian company, for recording the transfer of ownership in its books

ii. Pricing Guidelines:

Price of shares by way of sale under private arrangement by a person resident outside India to a person resident in India:-

a. Sale of shares by a non-resident to resident shall be in accordance with Regulation 10 B (2) of Notification No. FEMA 20/2000-RB dated May 3, 2000 which shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident as given below:-

  • Listed: – Listed on a recognized stock exchange in India shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines. Condition: the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares
  • Non- Listed: – Not Listed on a recognized stock exchange in India shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on arm’s length basis.

Condition: The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant

b. After the lock-in period, as applicable above, and subject to FDI Policy provisions, if any, in this regard, the non-resident investor exercising option/right in shares or convertible debentures issued under FDI Scheme shall be eligible to exit without any assured return, as per pricing/valuation guidelines issued by RBI from time to time.

iii. Responsibilities / Obligations of the parties: Same as discussed above.

iv. Method of payment and remittance/credit of sale proceeds :

  • Person Resident outside India: The sale proceeds of shares (net of taxes) sold by a person resident outside India may be remitted outside India.
  • FII & FPI: In case of FII/FPI, the sale proceeds may be credited to its special Non-Resident Rupee Account.
  • NRI:
    • Repatriation Basis: In case of NRI, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE /FCNR(B) accounts.
    • Non- Repatriation Basis: if the shares sold were held on non repatriation basis, the sale proceeds may be credited to his NRO account subject to payment of taxes
  • OCB:
  • Repatriation Basis: The sale proceeds of shares (net of taxes) sold by an OCB may be remitted outside India directly if the shares were held on repatriation basis.
  • Non- Repatriation Basis: If the shares sold were held on non-repatriation basis, the sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the case of OCBs whose accounts have been blocked by Reserve Bank

v. Documentation Involved:-

  • Form: The Form FC-TRS (in quadruplicate) should be submitted to the AD Category-I Bank, within 60 days from the date of receipt of the amount of consideration.
  • Onus of Submission: The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India.
  • Share of Listed Company: However, in cases where the NR investor, including an NRI, acquires shares on the stock exchanges under the FDI scheme, the investee company would have to file form FC-TRS with the AD Category-I bank.

Other Documents: Besides obtaining a declaration in the enclosed Form FC-TRS (in quadruplicate), AD branch should arrange to obtain and keep on record the following documents:

S. No.Document NameBrief Particular of Document
1. Consent LetterConsent Letter duly signed by the seller and buyer or their duly appointed agent indicating the details of transfer i.e.

– number of shares to be transferred

– The name of the investee company whose shares are being transferred

– The price at which shares are being transferred

 

2. Letter ExchangedIn case there is no formal Sale Agreement, letters exchanged to this effect may be kept on record.
3. Power of AttorneyWhere Consent Letter has been signed by their duly appointed agent, the Power of Attorney Document executed by the seller/buyer authorizing the agent to purchase/sell shares.

 

4. Valuation CertificateCertificate indicating fair value of shares from a Chartered Accountant.
5. NOCNo Objection / Tax Clearance Certificate from Income Tax authority/Chartered Account.
6. Undertaking from the buyerUndertaking from the buyer to the effect that the Pricing Guidelines have been adhered to.
If the sellers are NRIs/OCBs

 

7. RBI Approval LetterThe copies of RBI approvals evidencing the shares held by them on repatriation/non-repatriation basis. The sale proceeds shall be credited NRE/NRO account, as applicable

 

Reporting requirements: Same as above

C. Transfer of shares from Resident to Non-Resident:

S. No.FAQ’s
In all the above mentioned 4 cases approval of RBI not required
I. Where the transfer of shares requires the prior approval of the Government conveyed through FIPB as per the extant FDI policy provided that.
a) the requisite approval of the FIPB has been obtained; and

b) the transfer of shares adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

II. Where the transfer of shares attract SEBI (SAST) Regulations
subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time
III. Where the transfer of shares does not meet the pricing guidelines under the FEMA, 1999 provided that
a) The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;

b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition/SEBI SAST); and

c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

IV. Where the investee company is in the financial sector provided that:
a) Any ‘fit and proper/due diligence’ requirements as regards the non-resident investor as stipulated by the respective financial sector regulator, from time to time, have been complied with; and

b) The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, pricing, etc.), reporting requirements, documentation etc., are complied with.

Prior Permission of RBI: Following below mentioned cases requires prior approval of RBI for transfer of capital instrument: Extract of the FDI Policy:

Except cases mentioned in below, the following cases require prior approval of RBI:

(i) Transfer of capital instruments from resident to non-residents by way of sale where:

(a) Transfer is at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time and the transaction does not fall under the exception given in para 5.2.

(b) Transfer of capital instruments by the non-resident acquirer involving deferment of payment of the amount of consideration. Further, in case approval is granted for a transaction, the same should be reported in Form FC-TRS, to an AD Category-I bank for necessary due diligence, within 60 days from the date of receipt of the full and final amount of consideration.

(ii) Transfer of any capital instrument, by way of gift by a person resident in India to a person resident outside India. While forwarding applications to Reserve Bank for approval for transfer of capital instruments by way of gift, the documents mentioned in Section 2 of this Annexure should be enclosed. Reserve Bank considers the following factors while processing such applications:

(a) The proposed transferee (donee) is eligible to hold such capital instruments under Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

(b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.

(c) The applicable sectoral cap limit in the Indian company is not breached.

(d) The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section 2 (77) of Companies Act, 2013, as amended from time to time. The current list is reproduced in Section 3 of this Annexure.

(e) The value of capital instruments to be transferred together with any capital instruments already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 during the financial year.

(f) Such other conditions as stipulated by Reserve Bank in public interest from time to time.

(iii) Transfer of shares from NRI to non-resident.

In the following cases, approval of RBI is not required: Extract of the FDI Policy:

Transfer of shares from a Non-Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that:

i. The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition/SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift:-

  • Form: The Form FC-TRS (in quadruplicate) should be submitted to the AD Category-I Bank, within 60 days from the date of receipt of the amount of consideration.
  • Onus of Submission: The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India.

Other Documents: Besides obtaining a declaration in the enclosed Form FC-TRS (in quadruplicate), AD branch should arrange to obtain and keep on record the following documents:

S. No.Document NameBrief Particular of Document
1. Detail of PartiesName and address of the transferor (donor) and the transferee (donee).
2. RelationshipRelationship between the transferor and the transferee
3. ReasonReasons for making the gift
4. Certificate from the concerned Indian company– Certifying that the proposed transfer of shares/convertible debentures by way of gift from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and

– that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company

5. Certificate from CAIn case of shares and convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to the guidelines issued by Securities & Exchange Board of India or as per any internationally accepted pricing methodology on arm’s length basis for listed companies and unlisted companies, respectively.
6. Undertaking from Resident TransferorAn undertaking from the resident transferor that the value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000during a financial year.
7. Declaration from DoneeA declaration from the donee accepting partly paid shares or warrants that donee is aware of the liability as regards calls in arrear and consequences thereof.
In case of Government dated securities and treasury bills and bonds,
8. CA Certificatea certificate issued by a Chartered Accountant on the market value of such security
In case of units of domestic mutual funds and units of Money Market Mutual Funds,
9. CertificateA certificate from the issuer on the Net Asset Value of such security.

CS Divesh Goyal(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

Read Other Articles Written by CS Divesh Goyal

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the written consent of the author.

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