Globalization has opened various doors for people and countries to invest and deal globally. With increase in trade and investments need to create laws to protect the interest of people and to prevent malpractices became a necessity. In India we have foreign exchange management act, 1999 (FEMA) to manage and frame regulations about foreign direct investment, the act provides set of rules to be followed white investing internationally.
ISSUE OF PRICE OF SHARE:
Indian companies are provided with the guidelines on how shares prices should be determined those provisions are as follows –
- Equity shares – while deciding equity shares the companies need to comply with the provisions of companies act, 2013. It also includes shares that are partly paid.
- Debentures – as per the provisions, the debentures issued should be fully, compulsorily and mandatorily convertible.
- Preference shares – preference shares also should be fully, compulsorily and mandatorily convertible.
- Share warrants – share warrants which are issued on or after 8th July 2014 will be considered as capital instruments.
The price should not be less than the price worked out in accordance with relevant SEBI guidelines in case of a listed Indian company or in case of a company going through a delisting process as per the SEBI (delisting of equity share) regulations 2009.
Or, the valuation of capital investments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company
In case of convertible capital instrument, the pricing formula of the instrument is required to be determined upfront at the time of issue of the instrument. 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 instruments, in accordance with the extant FEMA regulations.
AMENDMENT IN PRICING GUIDELINES UNDER FEMA REGULATIONS:
RBI’s direction states the pricing guidelines for various form or number of ways to price capital instrument. The pricing guidelines can be summarized as follows.
At whatever time, the Indian company issues a capital instrument, then the price must not be less than:
The price is in accordance with relevant SEBI guidelines for listed company or when it is going through the delisting process.
For an unlisted company, the fair value is determined as per the international pricing methodology, which should be duly certified by CA or Banker or Cost Accountant or SEBI Registered Merchant.
For a convertible capital instrument, the price of conversion must not be less than the fair value at the time of issuance of the capital instruments in accordance with the FEMA regulations.
In case of swap capital instrument, the valuation will be made by a Merchant Banker Registered with the SEBI or an Investment banker outside India registered with the appropriate authority in the host country.
When an Indian Company issue shares to a person resident outside India in accordance with the provisions of Companies Act, 2013 by subscription to the MOA (memorandum of Association), then such investment must be valued at the face value subject to entry route.
The price in case of convertible capital instrument in case of share warrants must not be lower than the fair market value determined at the time of issuance of such warrants.
An Indian company issuing shares under FDI shall receive share allotment money through inward remittance through normal banking channel or debit to NRE/ FCNR (B)/ Escrow account maintained with an Authorised Dealer or Bank in India in accordance with Foreign Exchange Management (Deposit) Regulations, 2016.
If the capital instruments are not issued by the Indian company within 60 days from the date of receipt of funds, then the funds are to be refunded within 15 days from date of completion of 60 days through the same channel as receipt of funds.
The Reserve Bank of India has simplified the foreign investment reporting by Indian entities by consolidating different forms in one master form namely Single Master Form (SMF) on the Foreign Investment Reporting and Management System (FIRMS).
The introduction of SMF has dispensed with the earlier two stage reporting i.e., first reporting after the receipt of money in Advance Reporting Forum (ARF) and second after the allotment of shares in form FC-GPR. Now only one reporting is to be made after allotment in form FC – GPR (Foreign Currency – Gross Provisional Return).
A. As per the Companies Act, 2013, the company has to keep the amount received as Share Application money in a separate bank account and cannot utilize it before the allotment of shares to the investors. Noncompliance leads Promoters and Directors liable for a penalty up to the amount involved or INR 2 Crores whichever is higher. Also, company shall refund all the money to the subscribers within the period of 30 days from the day of penalty along with the interest of 12% p.a.
B. As per Ministry of Corporate Affairs the Company has to issue/ allot shares within 60 days from the date of receipt of funds.
C. For allotment of shares, Board Meeting has to be conducted with the Board of Directors.
D. A report in the form FC-GPR is to be filed with the Reserve Bank of India within 30 days from date of issuance of shares. The form covers the details of the investee company, main business activity for which investment is made, percentage of FDI as allowed by the FDI policy, route of investment, date of issue of shares, details of foreign investor, type of security issued. The form should be filed along with the following documents: Certificate from the Company Secretary of the company accepting the investment Share valuation certificate by the Chartered Accountant for the shares issued to the foreign investor Board Resolution for the share allotment
E. Form PAS -3 signed by CA/CS is to be filed with Ministry of Corporate Affairs within 30 days from the date of allotment of shares. The form covers the details regarding: Type of security issued Date of Allotment Number of Allotment Amount of consideration received Whether the allotment of shares is for consideration other than cash The form is to be attached with list of allottees of shares and Board Resolution.
F. Share Certificate is to be issued within 60 days from the allotment of shares. G. Stamp Duty has to be paid by the company on the shares allotted as per the regulations of the state in which company is registered.
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