TRANSFER OF SHARES AND CONVERTIBLE DEBENTURES

INTRODUCTION:

                              shares and convertible debentures both are transferable documents. Under foreign direct investment policies rules and regulations about such transfer are mentioned.

Shares are ownership capital while debentures are borrowed capitals. After purchasing a share or a debenture person gets a certificate of such purchase and that certificate is a transferable document. Shares and debentures are considered as an intangible asset which cannot be seen but they can be sold and purchased.

WHAT ARE SHARES:

                                    Shares are the unit of equity ownership in a corporation. Shares of a company are sold to public (in case of public company) to raise capital. Owners of shares get dividend in exchange of their investment. Shares are of two types one is equity shares and second one is preference shares; equity shares are ownership capital while preference shareholders have preferential rights.

WHAT ARE DEBENTURES: 

                                              Debentures are borrowed capital which are long term security yielding a fixed rate of interest, issued by a company and secured against an asset.

TRANSFER OF SHARES AND CONVERTIBLE DEBENTURES:

                                                       Subject to FDI sectoral policy, applicable laws and other conditionalities including security conditions, non-resident investors can also invest in Indian companies by purchasing existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents/NRIs for acquisition of shares by way of transfer subject to the following:

  1. A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs). Government approval is not required for transfer of shares in the investee company from one non-resident to another non-resident in sectors which are under automatic route. In addition, approval of Government will be required for transfer of stake from one non-resident to another non-resident in sectors which are under Government approval route.
  2. NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.
  3. A person resident outside India can transfer any security to a person resident in India by way of gift.
  4. A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI.
  5. A person resident in India can transfer by way of sale, shares/ convertible debentures (including transfer of subscriber’s shares), of an Indian company under private arrangement to a person resident outside India, subject to the guidelines.
  6. General permission is also available for transfer of shares/convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India, subject to the guidelines.
  7. The above general permission also covers transfer by a resident to a non-resident of shares/convertible debentures of an Indian company, engaged in an activity earlier covered under the Government Route but now falling under Automatic Route, as well as transfer of shares by a non-resident to an Indian company under buyback and/or capital reduction scheme of the company.
  8. The Form FC-TRS should be submitted to the AD Category-I Bank, within 60days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India. However, in cases where the NR investor, including an NRI, acquires shares on the stock exchanges under the FDI scheme, the investee company would have to file form FC-TRS with the AD Category- I bank.

The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a Know Your Customer (KYC) check by the remittance receiving AD Category-I bank at the time of receipt of funds. In case the remittance receiving AD Category-I bank is different from the AD Category-I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category-I bank carrying out the transaction along with the Form FC-TRS.

PRIOR PERMISSION OF RBI IN CASE OF TRANSFER OF CAPITAL INSTRUMENT:

In the following cases following permission of RBI is required –

  1. Transfer of capital instruments from resident to non-residents by way of sale

Transfer is at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time.

Transfer of capital instruments by the non-resident acquirer involving deferment of payment of the amount of consideration. Further, in case approval is granted for a transaction, the same should be reported in Form FC-TRS, to an AD Category-I bank for necessary due diligence, within 60 days from the date of receipt of the full and final amount of consideration.

Transfer of any capital instrument, by way of gift by a person resident in India to a person resident outside India. While forwarding applications to Reserve Bank for approval for transfer of capital instruments by way of gift, the documents should be enclosed. Reserve Bank considers the following factors while processing such applications:

The proposed transferee is eligible to hold such capital instruments under Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.

The applicable sectoral cap limit in the Indian company is not breached.

The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section 2 (77) of Companies Act, 2013, as amended from time to time.

The value of capital instruments to be transferred together with any capital instruments already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 during the financial year.

Such other conditions as stipulated by Reserve Bank in public interest from time to time.

Transfer of share from NRI to non-resident.

IN FOLLOWING CASES PERMISSION OF RBI IS NOT REQUIRED –

                                                                                 Transfer of shares from a Non-Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that:

The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition/SEBI SAST, buy back); and

Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

TRANSFER OF SHARES FROM RESIDENT TO NON-RESIDENT –

1) where the transfer of shares requires the prior approval of the Government as per the extant FDI policy provided that:

the requisite approval of the Government has been obtained; and

the transfer of shares adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

2) where the transfer of shares attracts SEBI (SAST) Regulations subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

3)where the transfer of shares does not meet the pricing guidelines under the FEMA, 1999 provided that:

The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;

The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition/SEBI SAST); and

Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

4)where the investee company is in the financial sector provided that:

Any ‘fit and proper/due diligence’ requirements as regards the non-resident investor as stipulated by the respective financial sector regulator, from time to time, have been complied with; and

The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, pricing, etc.), reporting requirements, documentation etc., are complied with.

REFERENCES –

  1. https://www.businesspivot.in/transfer-of-shares-and-convertible-debentures-under-fdi-policy

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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