Neelu Singh


Securities and Exchange Board of India (hereinafter known as SEBI) in its Board Meeting held on 21st January, 2015 has approved proposal to carry out some amendments in SEBI (ICDR) Regulations, 2009 ( Regulations, 2009) with FEMA Act so as to harmonize the norms on receipt of upfront payment and tenure of partly paid shares / warrants. This will curb the difficulties faced by listed companies (Issuer) while issuing securities to foreign investors as this requires compliance of Regulations, 2009 as well as FEMA (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (FEMA Regulations).

RBI vide RBI/2014-15/123 A.P.(DIR Series) Circular No. 3 dated 14th July, 2014 intimated the changes made to FEMA Regulations vide Notification No. FEMA. 308 /2014-RB dated June 30, 2014 thereby regarding partly paid equity shares and warrants issued by an Indian company in accordance with the provision of the Companies Act, 2013 and the SEBI guidelines, as applicable, as eligible instruments for the purpose of FDI and foreign portfolio investment (FPI) by Foreign Institutional Investors (FIIs)/Registered Foreign Portfolio Investors(RFPIs).

Existing provisions under Regulations, 2009 and FEMA Regulations and effect of the said amendment will be as under:


Regulation, 2009:

  • Regulation 77 provides that full consideration of specified securities[1] other than warrants shall be paid by allottees at the time of allotment of Shares.
  • Regulation 17 provides that if the issuer proposes to receive subscription monies in calls, it shall ensure that the outstanding subscription money is called within twelve months from the date of allotment in the issue.
  • This twelve month period would not be insisted if issuer had appointed monitoring agency as required under Regulation 16. Regulation 16 inter alia provides that If the issue size exceeds five hundred crore rupees, the issuer shall make arrangements for the use of proceeds of the issue to be monitored by a public financial institution or by one of the scheduled commercial banks named in the offer document as bankers of the issuer[2].

FEMA Regulations:

  • The pricing of the partly paid equity shares shall be determined upfront and 25% of the total consideration amount ( including share premium, if any), shall also be received upfront
  • The balance consideration towards fully paid equity shares shall be received within a period of 12 months.
  • However this time period of 12 months would not be insisted upon if:
    • The issue size is more than Rupees 500 crore.
    • The issuer complies with Regulation 17 of Regulations, 2009 regarding monitoring agency.
  • In case of an unlisted Indian company, the balance consideration amount can be received after 12 months where the issue size exceeds rupees five hundred crores. However, the investee company shall appoint a monitoring agency on the same lines as required in case of a listed Indian company under the Regulations, 2009.

Proposed Amendment:

  • In case of partly paid shares issued through Public / Rights Issue, a minimum 25% of the issue price shall necessarily be received upfront.
  • The balance consideration shall continue to be received within 12 months if the issue size is less than Rs. 500 crore.
  • Where the issue size exceeds Rs. 500 crore and the issuer has appointed a monitoring agency, the period can be decided by the issuer as per the existing regulatory framework.


Regulations, 2009:

  • As per Regulation 77 (2) & (3) an amount equivalent to atleast 25% of the consideration determined in terms of Regulation 76 shall be paid against each warrant on the date of allotment of warrants. The balance 75% of the consideration shall be paid at the time of allotment of equity shares pursuant to exercise of option against each such warrant by the warrant holder.
  • As per Regulation 4(3)(a) the tenure of warrants shall not exceed twelve months from their date of allotment in the public/rights issue;

FEMA Regulations:

  • The pricing of the warrants and price/ conversion formula shall be determined upfront and 25% of the consideration amount shall also be received upfront.
  • The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such warrants, in accordance with the extant FEMA Regulations and pricing guidelines stipulated by RBI from time to time. Thus, Investee company shall be free to receive consideration more than the pre-agreed price
  • The balance consideration towards fully paid up equity shares shall be received within a period of 18 months;

Proposed Amendment:

  • Warrants issued along with public or rights issue of specified securities, 25% of the consideration shall be received upfront by the issuer
  • Tenure of such warrants shall be 18 months as against 12 months presently.

[1] means equity shares and convertible securities;

[2] This shall not apply in case of an offer for sale or an issue of specified securities made by a bank or public financial institution or an insurance company.

(Author is associated with Vinod Kothari & Company and can be reached at

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