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As per the Companies Act 2013the SHARES of company either of a Public Ltd. Company or Private Company are  part of Securities under Section 2(81); Section 44 and Section 58(2) and also states that securities are moveable property and are freely transferable. By this we get to know that Shares are transferable in nature.

Section 2(e) of FEMA 1999, states TRANSFER OF Shares and other form of Securities as- LEGALLY TRANSFERABLE CAPITAL ACCOUNT TRANSACTION.

Few things are mentioned under the PERMISSIBLE CAPITAL ACCOUNT TRANSACTIONS by PERSONS WHO ARE RESIDENT OUTSIDE INDIA-

  • Investment in India- either in a Security issued by a body corporate or security issued by a company in India and investment made in it by a resident outside India.
  • A person who is Resident outside India can transfer share in India as provided under FEMA or Rules and Regulations made under FEMA or with the permission of RBI.

Provisions for Share transfer between Non- Resident to Non- Resident-

Under Companies Act, 2013-

Section 56 of The Companies Act, 2013 has to be followed which prescribes SH-4 Form has to be filed with the company whose shares are transferred. The insights of the form are entire summary of the share transfer along with every aspect of the agreement. It has to be filed within 60 days from the date of share transfer. No other option is prevailing by which companies can record the share transfer and update the list of members.

Under Stamp Act, 1899-

Section 21 in accordance with Article 62 of Schedule 1 will into force under which a payment of duty will be required to be paid which amounts-Rs. 0.25 of every Rs. 100.

Under Foreign Exchange Management Act, 1999-

  • If the Non- Resident is NRI or OCI then special permission will have to be taken by the RBI as per the Foreign Exchange Management Regulations, 2017.
  • Prior Government approval shall be obtained for any transfer in case the company is engaged in a sector which requires Government approval.
  • Where the acquisition of capital instruments by an NRI or an OCI under the provisions of Schedule 3 of these regulations has resulted in a breach of the applicable aggregate NRI/ OCI limit or sectoral limits, the NRI or the OCI shall sell such capital instruments to a person resident in India eligible to hold such instruments within the time stipulated by Reserve Bank in consultation with the Central Government. The breach of the said aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale, provided the sale is within the prescribed time, shall not be reckoned as a contravention under these Regulations.
  • As per the regulations the price has to be fair and similar to the actual one being dealt locally.
  • A person resident in India holding capital instruments of an Indian company or units, or an NRI or an OCI or an eligible investor under Schedule 4 of these Regulations, holding capital instruments of an Indian company or units on a non-repatriation basis, may transfer the same to a person resident outside India by way of sale, subject to the adherence to entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions as applicable for investment by a person resident outside India and documentation and reporting requirements for such transfers as may be specified by Reserve Bank from time to time.

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