Guest post by Pronamika Bhattacharya
The transfer of shares of
a Company leads to change in ownership of the Company to the extent of the
percentage holding of the transferred shares. While there may be varied
objectives to transfer shares, one of the dominant reasons in current times is
to bring in better technology or know how into the company. With the increased
pace of integrating the domestic market with the international market, it has
become very common to execute a share transfer agreement or technology transfer
agreement or a blend of both, between Indian and Foreign/Non Resident Indian
Persons.
Few
relevant definitions:
[A ‘Non-resident
entity’ means a ‘person resident outside India’ as defined under FEMA.
A ‘Non-Resident Indian’
(NRI) means an individual resident outside India who is a citizen of India or
is an ‘Overseas Citizen of India’ cardholder within the meaning of section 7
(A) of the Citizenship Act, 1955.
‘Persons of Indian
Origin’ cardholders registered as such under Notification No. 26011/4/98 F.I.
dated 19.8.2002 issued by the Central Government are deemed to be ‘Overseas
Citizen of India’ cardholders’.
A company is considered
as ‘Owned’ by resident Indian citizens if more than 50% of the capital in it is
beneficially owned by resident Indian citizens and / or Indian companies, which
are ultimately owned and controlled by resident Indian citizens. A Limited
Liability Partnership will be considered as owned by resident Indian citizens
if more than 50% of the investment in such an LLP is contributed by resident
Indian citizens and/or entities which are ultimately ‘owned and controlled by
resident Indian citizens’ and such resident Indian citizens and entities have
majority of the profit share.][1]
Investments can be made
by non-residents in the equity shares/fully, compulsorily and mandatorily
convertible debentures/fully, compulsorily and mandatorily convertible
preference shares of an Indian company, through the Automatic Route or the
Government Route. Under the Automatic Route, the non-resident investor or the
Indian company does not require any approval from Government of India for the
investment. Under the Government Route, prior approval of the Government of
India is required. Proposals for foreign investment under Government route, are
considered by FIPB.[2]
Investment by NRI
investors in Indian companies can be either by way of acquiring shares from existing
Indian shareholders or from other non-resident shareholders. Now, subject to the
FDI sectoral caps and entry routes, following general permissions are granted
to NRIs for acquisition of shares by way of transfer:
(a) A person resident
outside India (other than NRI) 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.
(b) NRIs may transfer
by way of sale or gift the shares or convertible debentures held by them to
another NRI.
(c) A person resident
outside India can transfer any security to a person resident in India by way of
gift.
(d) 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.
(e) 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 prescribed guidelines.
(f) 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 prescribed guidelines.
(g) 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.
(h)
Reporting
of transfer of shares between residents and non-residents and vice versa is to
be done in Form FC-TRS which is to be submitted to the designated AD branch in
quadruplicate within 60 days from the date of receipt of the amount of
consideration. And 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 Non Resident 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
following documents are to be enclosed with the Form FC-TRS
For
sale of shares / compulsorily and mandatorily convertible preference shares /
debentures / others by a person resident in India:
i.
Consent Letter duly signed by the seller and buyer or their duly appointed agent
and in the latter case the Power of Attorney Document.
ii.
The shareholding pattern of the investee company after the acquisition of
shares by a person resident outside India.
iii.
Certificate indicating fair value of shares from a Chartered Accountant.
iv.
Copy of Broker's note if sale is made on Stock Exchange.
v.
Declaration from the buyer to the effect that he is eligible to acquire shares
/ compulsorily and mandatorily convertible preference shares /
debentures/others under FDI policy and the existing sectoral limits and Pricing
Guidelines have been complied with.
vi.
Declaration from the FII/sub account to the effect that the individual FII /
Sub account ceiling as prescribed has not been breached.
Additional
documents in respect of sale of shares / compulsorily and mandatorily
convertible preference shares / debentures / others by a person resident
outside India
vii.
If the sellers are NRIs/OCBs, the copies of RBI approvals, if applicable,
evidencing the shares held by them on repatriation/non-repatriation basis.
viii.
No Objection/Tax Clearance Certificate from Income Tax Authority/ Chartered
Account.
ix. 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.
FCTRS
going electronic[3]
With a
view to promoting the ease of reporting of transactions under foreign direct
investment, the Reserve Bank of India (RBI), under the aegis of the e-Biz
project of the Government of India has enabled online filing of the Foreign
Currency Transfer of Shares (FCTRS) returns for reporting transfer of shares,
convertible debentures, partly paid shares and warrants from a person resident
in India to a person resident outside India or vice versa.
The
design of the reporting platform enables the customer to login into the eBiz
portal, download the reporting form (FCTRS), complete and then upload the same
onto the portal using their digitally signed certificates. The Authorised
Dealer Banks (ADs) will be required to download the completed forms, verify the
contents from the available documents and if necessary, call for additional
information from the customer and then upload the same for RBI to process and
allot the Unique Identification Number (UIN). The FC-TRS services of RBI has
been made operational on the e-Biz platform from August 24, 2015.
As stated above, that
the form FC-TRS has to be filed within 60 days from receipt of consideration,
therefore the sequence of events (one of which is to file the FC-TRS in a
transfer of shares) would vary when transfer is from -
-
Resident to Non-Resident, or
-
Non-Resident to Resident
Where the transfer is
from a Resident to a Non-Resident, then –
1)
Transfer of shares and receipt of consideration from Non resident
2)
Receive FIRC from the AD Bank for the aforesaid consideration as per the FDI
norms for receiving inward remittances.
3)
File FC-TRS along with the other attachments as explained above + the FIRC.
4)
Receive RBI approval to the FC-TRS
5)
Submit, the FC-TRS, share transfer form, share certificate (if any) and any
other document required by the Company to register the transfer, with the
Company.
6)
Company will register the transfer and register the Non-Resident as a
shareholder of the Company.
Where
the transfer is from a Non-Resident to a Resident, then –
1)
Here consideration will be paid by the Resident, but the Non-Resident cannot
transfer without FC-TRS being filed. So first, FC-TRS would be filed along with
all relevant attachments.
2)
Then file with the AD bank the proof of filing the FC-TRS along with documents
required to pay the consideration to the Non Resident.
3)
AD Bank will make the remittance.
4)
Receive RBI approval to the FC-TRS
5)
Along with the RBI approval to the FC-TRS, share transfer form, share
certificate (if any) and any other document, approach the Company.
6)
The Company will register the transfer and the shares in the name of the
Resident.
Company Secretary GAURAV SHARMA+919990694230 Connect on Watts App with Gaurav Email us [email protected] Submit your guest articles for our website click here we will publish it Subscribe our Email updates like other 100,000 Members, Free/Easy/Comfortableway
