Capital Instruments’ are equity shares, debentures, preference shares and share warrants issued by an Indian company in regards to Purchase/Sale of Capital Instruments by PROI of an Indian company.
An Indian company is permitted to issue capital instruments to a person resident outside India subject to entry routes, sectoral caps and attendant conditionalities specified for foreign investment.
A person resident outside India may purchase capital instruments of a listed Indian company on a stock exchange in India subject to following conditions:
A wholly owned subsidiary set up in India by a non-resident entity, operating in a sector where 100 percent foreign investment is allowed under the automatic route and there are no FDI linked performance conditions, may issue capital instruments to the said non-resident entity against pre-incorporation/ preoperative expenses incurred by the said non-resident entity up to a limit of five per cent of its authorised capital (as defined in the Companies Act, 2013) or USD 500,000 whichever is less, subject to the following conditions:
1. Form FC-GPR, is filed by the Indian company within thirty days from the date of issue of capital instruments but not later than one year from the date of incorporation.
2. A certificate issued by the statutory auditor of the Indian company that the amount of pre-incorporation/ pre-operative expenses against which capital instruments have been issued has been utilized for the purpose for which it was received should be submitted with the Form FC-GPR.
Pre-incorporation/ pre-operative expenses will include amounts remitted to the investee Company’s account or to the investor’s account in India if it exists or to any consultant or attorney or to any other material/ service provider for expenditure relating to incorporation or necessary for commencement of operations.
An Indian company may issue equity shares (excluding partly paid shares) to a person resident outside India against any funds payable by it to such person, the remittance of which is permitted under the Act or the rules or the regulations framed or directions issued there under or does not require prior permission of the Central Government or the Reserve Bank under the Act or the rules or the regulations framed or directions issued there under subject to the following conditions:
An Indian company may issue equity shares (other than partly paid shares) to a person resident outside India against any funds payable by it to such person, the remittance of which has been permitted by the Reserve Bank under the Act or the rules or the regulations framed or directions issued there under.
In case where permission has been granted by the Reserve Bank for making remittance as mentioned above, the Indian company may issue equity shares (other than partly paid shares) against such remittance provided all regulatory actions with respect to the delay or contravention under the Act or the rules or the regulations framed there under have been completed.
An Indian company may issue capital instruments to a person resident outside India under automatic route if the Indian investee company is engaged in a sector under automatic route or with prior Government approval if the Indian investee company is engaged in a sector under Government route against:
1. The applications should be accompanied by documents evidencing independent valuation above and a special resolution of the company;
2. The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and
3. Applications (complete in all respects) for capitalization should be submitted within 180 days from the date of shipment of goods.
1. The applications should be accompanied with evidence of documents and a special resolution of the company.
2. The application (complete in all respects) for capitalization being made within a period of 180 days from the date of incorporation of the company.
The amount of consideration should be paid as inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
The amount of consideration will include issue of equity shares by an Indian company against any funds payable by it to the investor and also swap of capital instruments where the Indian investee company is engaged in an automatic route sector.
If the capital instruments are not issued by the Indian company within sixty days from the date of receipt of the consideration, the amount so received has to be refunded to the person concerned by outward remittance through banking channels or by credit to his NRE/ FCNR(B) accounts, as the case may be, within fifteen days from the date of completion of sixty days.
In case of partly paid equity shares, the period of 60 days will be reckoned from the date of receipt of each call payment. The forfeiture of the amount paid upfront on non-payment of call money shall be in accordance with the provisions of the Companies Act, 2013 and Income Tax Act, 1961 as applicable.
Refund may be permitted by an authorised dealer provided it is satisfied:
Prior approval of the Reserve Bank will be required for payment of interest, if any, as laid down in the Companies Act, 2013, for delay in refund of the amount so received. Non-compliance of provision regarding refund shall be a contravention of FEMA 20(R) notwithstanding the fact that interest for delayed refund has been paid as per Companies Act, 2013.
The Indian company issuing capital instruments is permitted to open a foreign currency account with an Authorised Dealer in India in accordance with Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2015 in regards to Purchase/Sale of Capital Instruments by PROI of an Indian company.
The sale proceeds (net of taxes) of the capital instruments can be remitted outside India or credited to the NRE/ FCNR(B) account of the person concerned.