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Transfer of Shares by a Resident Indian to a Non Resident (Rules, Regulations and Procedure)

>> Oct 4, 2011


Transfer of Shares by a Resident Indian to a Non Resident
(Rules, Regulations and Procedure)

Transfer of Shares by a person resident in India to a person resident outside India (other than erstwhile OCB, foreign national, NRI, FII ) and vice versa is governed in accordance procedure for issue of shares as laid down in the FDI policy read with notification no. FEMA 20/2000-RBI dated 3rd May 2000 as amended from time to time. We may discuss the issue under the following heads:

                                                               i.            Pricing of Shares
                                                             ii.            Method of payment and remittance/credit of sale proceeds.
                                                            iii.            Documentation
                                                           iv.            Reporting Requirement.

A-    LEGAL PROVISIONS FOR TRANSFER OF SHARES FROM RESIDENT TO NON-RESIDENT


             I.      Pricing of Shares:

If the shares are transferred to an incorporated non-resident entity other than erstwhile OCB, foreign national, NRI, FII then the value of shares shall be arrived at. And the pricing can be done in the following way:

(a)        If the shares of a listed company is transferred

            The price of the shares of a Company that is listed on a recognized stock exchange in India, shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines (i.e. as per the ICDR Regulations 2009) provided the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of sale of shares,

(b)        If the shares of an unlisted company are transferred:

The price at which the shares shall be transferred shall be the fair value of the shares. The valuation in this case shall be done by the discounted free cash flow method. The share valuation can only be done by a Chartered Accountant or by a SEBI registered Category I Merchant Banker. The price per share arrived at should be certified by a SEBI registered Category I Merchant Banker or a Chartered Accountant.


          II.      Method of payment and remittance/credit of sale proceeds

As per Clause 4 of the Annexure 2 of the Consolidated FDI Policy 2011 dated October 2011, the remittance of money of the sale proceeds shall be done in the following way.

  1. The sale consideration in respect of the shares purchased by a person resident outside India shall be remitted to India through normal banking channels. In case the buyer is a Foreign Institutional Investor (FII), payment should be made by debit to its Special Non-Resident Rupee Account. In case the buyer is a NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts. However, if the shares are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal banking channel or paid out of funds held in NRE/FCNR (B)/NRO accounts.


Documentation

After the remittance of money, form FC-TRS (in quadruplicate) needs to be filed alongwith the Reserve Bank of India. The Documents are filed through the AD category –I banks. The following documents needs to be submitted alongwith the AD category –I Bank for the purpose of its intimation to the Reserve Bank o India.

  1. Form FC-TRS and Consent Letter duly signed by the seller and buyer or their duly appointed agent indicating the details of transfer i.e. number of shares to be transferred, the name of the investee company whose shares are being transferred and the price at which shares are being transferred. In case there is no formal Sale Agreement, letters exchanged to this effect may be kept on record.

  1. Where Consent Letter has been signed by their duly appointed agent, the Power of Attorney Document executed by the seller/buyer authorizing the agent to purchase/sell shares.

  1. Certificate indicating fair value of shares from a Chartered Accountant.

  1. Copy of Broker‘s note if sale is made on Stock Exchange

  1. Copy of FIRC evidencing receipt of money.

  1. Undertaking from the buyer to the effect that he is eligible to acquire shares/ convertible debentures under FDI policy and the existing sectoral limits and Pricing Guidelines have been complied with.

  1. Undertaking from the FII/sub account to the effect that the individual FII/ Sub account ceiling as prescribed by SEBI has not been breached, if applicable

       III.      Reporting Requirement

a.       Reporting of transfer of shares between residents and non-residents and vice versa is to be done in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category-I bank, within 60 days from the date of receipt of the amount of consideration.

b.      The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India. The AD Category-I bank, would forward the same to its link office. The link office would consolidate the Forms and submit a monthly report to the Reserve Bank.

c.       For the purpose the Authorized Dealers may designate branches to specifically handle such transactions. These branches could be staffed with adequately trained staff for this purpose to ensure that the transactions are put through smoothly. The ADs may also designate a nodal office to coordinate the work at these branches and also ensure the reporting of these transactions to the Reserve Bank.

d.      When the transfer is on private arrangement basis, on settlement of the transactions, the transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee. On receipt of the certificate from the AD, the company may record the transfer in its books.

e.       The actual inflows and outflows on account of such transfer of shares shall be reported by the AD branch in the R-returns in the normal course.

f.        In addition the AD branch should submit two copies of the Form FC-TRS received from their constituents/customers together with the statement of inflows/outflows on account of remittances received/made in connection with transfer of shares, by way of sale, to IBD/FED/or the nodal office designated for the purpose by the bank . The IBD/FED or the nodal office of the bank will in turn submit a consolidated monthly statement in respect of all the transactions reported by their branches together with copies of the FC-TRS Forms received from their branches to Foreign Exchange Department, Reserve Bank, Foreign Investment Division, Central Office, Mumbai in soft copy (in MS- Excel) by e-mail to fdidata@rbi.org.in

g.       Shares purchased / sold by FIIs under private arrangement will be by debit /credit to their Special Non Resident Rupee Account. Therefore, the transaction should also be reported in Form LEC (FII) by the designated bank of the FII concerned.

h.       Shares/convertible debentures of Indian companies purchased under Portfolio Investment Scheme by NRIs, OCBs cannot be transferred, by way of sale under private arrangement.

i.         On receipt of statements from the AD, the Reserve Bank may call for such additional details or give such directions as required from the transferor/transferee or their agents, if need be.

1 comments:

Mike Marti December 6, 2011 at 11:37 AM  

Good post! I was doing research online on company registration when I came across your blog.

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