Summary: An Indian company proposing a Rights Issue under Section 62(1)(a) of the Companies Act, 2013 may face a question where an existing shareholder renounces the entitlement in favour of an NRI who subscribes on a non-repatriation basis. Section 62(1)(a) itself recognises renunciation, unless restricted by the Articles, and does not impose the registered-valuer pricing requirement contained in Section 62(1)(c). The FEMA position is also significant. Under Schedule IV to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, qualifying investment by an NRI/OCI on a non-repatriation basis is deemed to be domestic investment at par with investment made by residents. Therefore, NRI status by itself does not automatically create a valuation requirement where the transaction remains a genuine Rights Issue with valid renunciation and the investment qualifies under the non-repatriation framework. Similarly, FC-GPR reporting is linked to an issue reckoned as FDI and is not automatically attracted merely because the subscriber is an NRI where the qualifying investment is treated as domestic investment. The company must nevertheless verify the Articles, rights-offer procedure, renunciation, NRI/OCI eligibility, mode of payment, allotment, ROC filings, FEMA conditions and any separate statutory, regulatory or transaction-specific valuation requirement.
“I want to issue shares to an NRI — but do I need a valuation report?”
This question appears simple, but the answer depends upon the route of issue and the basis on which the NRI is investing.
Consider the following structure:
- An Indian company makes a Rights Issue under Section 62(1)(a) of the Companies Act, 2013;
- An existing shareholder renounces the rights in favour of an NRI; and
- The NRI subscribes to the shares on a non-repatriation basis.
Can the company proceed without obtaining a valuation report merely because the ultimate subscriber is an NRI?
Yes, subject to the facts and applicable conditions.
- 1. What does Section 62(1)(a) provide?
- 2. Does Section 62 itself require a valuation report for a Rights Issue?
- 3. FEMA position — NRI investment on non-repatriation basis
- 4. Therefore, is valuation required merely because the allottee is an NRI?
- 5. What about FC-GPR?
- 6. Compliance does not end with “No Valuation”
- 7. The real question is not “NRI or Resident?”
- Conclusion
1. What does Section 62(1)(a) provide?
Section 62(1)(a) of the Companies Act, 2013 provides that where a company proposes to increase its subscribed capital by issuing further shares, such shares shall be offered to the existing equity shareholders in proportion to their paid-up share capital.
More importantly, Section 62(1)(a)(ii) provides:
“unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person.”
Therefore, the statutory framework itself recognises renunciation of rights in favour of another person.
Accordingly, where the Articles do not restrict such renunciation, an existing shareholder may renounce the rights entitlement in favour of an NRI, subject to applicable law. (Indian Kanoon)
2. Does Section 62 itself require a valuation report for a Rights Issue?
This is an important distinction.
Section 62(1)(a) deals with a Rights Issue to existing shareholders.
The valuation language appears in Section 62(1)(c), which deals with an issue to persons authorised by a special resolution and expressly provides that the price of such shares is to be determined by a valuation report of a registered valuer.
The relevant portion of Section 62(1)(c) states:
“if the price of such shares is determined by the valuation report of a registered valuer…”
Thus, the mere fact that the ultimate subscriber to a Rights Issue is an NRI does not, by itself, introduce a valuation requirement under Section 62(1)(a).
The transaction must first be correctly characterised as a Rights Issue under Section 62(1)(a).
3. FEMA position — NRI investment on non-repatriation basis
The position becomes particularly relevant where the NRI subscribes on a non-repatriation basis.
Under Schedule IV to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, an NRI/OCI may invest in equity instruments of an Indian company on a non-repatriation basis.
The Schedule provides that:
“The investment detailed at sub-para 1 above will be deemed to be domestic investment at par with the investment made by residents.”
This is the key provision for the present analysis.
Therefore, a qualifying NRI/OCI investment made under Schedule IV on a non-repatriation basis is treated as domestic investment at par with resident investment. (Reserve Bank of India)
The current FEMA framework also prescribes that consideration for such investment may be received by inward remittance through banking channels or from NRE/FCNR(B)/NRO accounts, subject to the applicable requirements. The investment and capital appreciation are not permitted to be repatriated abroad. (Reserve Bank of India)
4. Therefore, is valuation required merely because the allottee is an NRI?
No.
Where the transaction is:
Rights Issue under Section 62(1)(a) + Valid Renunciation + NRI/OCI Subscriber + Non-Repatriation Basis
the NRI status, by itself, does not create a valuation requirement.
The more accurate legal proposition is:
A valuation report is not required merely because the subscriber/allottee is an NRI, where the shares are being issued through a genuine Rights Issue and the NRI investment is made on a qualifying non-repatriation basis, subject to there being no other independent valuation requirement applicable to the transaction.
This qualification is important.
It would be incorrect to state that every issue of shares to an NRI can be made without valuation.
The transaction has to be examined on its own facts and under the applicable statutory framework.
5. What about FC-GPR?
This is another important consequence of the FEMA classification.
Regulation 4(1) of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 provides:
“An Indian company issuing equity instruments to a person resident outside India and where such issue is reckoned as Foreign Direct Investment… shall report such issue in Form FC-GPR…”
Thus, FC-GPR reporting is linked to an issue which is reckoned as FDI.
Where the NRI investment is genuinely made under Schedule IV on a non-repatriation basis, and is consequently treated as domestic investment at par with residents, the investment is not treated as FDI merely because the subscriber is an NRI.
Accordingly, FC-GPR is not required merely on account of the NRI status where the investment is covered by the non-repatriation framework and does not constitute FDI. (Reserve Bank of India)
6. Compliance does not end with “No Valuation”
The conclusion should not be misunderstood as a general exemption from compliance.
Before proceeding with such a transaction, the company should verify:
- Section 62(1)(a) compliance;
- Whether the Articles permit renunciation;
- Proper Rights Offer and documentation;
- Valid renunciation in favour of the NRI;
- NRI/OCI eligibility under the applicable FEMA framework;
- Permitted mode of receipt of consideration;
- Allotment and related Companies Act compliances;
- ROC filings and statutory records; and
- Applicable FEMA conditions and reporting requirements.
The company should also check whether there is any separate statutory, regulatory or transaction-specific valuation requirement.
7. The real question is not “NRI or Resident?”
A common compliance approach is to begin with the identity of the investor:
“The investor is an NRI, therefore valuation is required.”
That approach can be misleading.
The better sequence is:
What is the route of issue?
What is the basis of investment?
Is the investment on repatriation or non-repatriation basis?
Does the transaction fall within the FDI framework?
Is there any independent valuation requirement?
These questions determine the applicable compliance framework.
Conclusion
A Rights Issue under Section 62(1)(a), coupled with valid renunciation in favour of an NRI and subscription on a non-repatriation basis, requires a different analysis from simply treating every NRI investment as FDI.
Under Schedule IV of the NDI framework, qualifying non-repatriation investment by an NRI/OCI is deemed to be domestic investment at par with resident investment.
Accordingly:
NRI status alone ≠ automatic valuation requirement.
Similarly, FC-GPR is not automatically triggered merely because the subscriber is an NRI, where the investment is covered by the non-repatriation framework and is not reckoned as FDI.
The correct approach is therefore not to ask only:
“Is the investor an NRI?”
but rather:
“Through what legal route are the shares being issued, and on what basis is the NRI investing?”
In FEMA and corporate law, the structure of the transaction matters.
