Foreign Exchange Management (Transfer or issue of Security
by a Person Resident outside India) Regulations, 2000
FEMA 20/2000-RB, dated
3-5-2000 [GSR 406(E), dated 3-5-2000] - In exercise of the powers conferred by clause (b)
of sub-section (3) of section 6 and section 47 of the Foreign Exchange
Management Act, 1999 (42 of 1999), the Reserve Bank makes the following
regulations to prohibit, restrict or regulate, transfer or issue security by a
person resident outside India, namely :—
(1) These Regulations may be called the
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2000.
(2) They shall come into effect on the 1st day of June, 2000.
In these Regulations, unless
the context requires otherwise,—
(i) ‘Act’ means the Foreign Exchange
Management Act, 1999 (42 of 1999);
(ii) ‘Capital’ means equity shares,
preference shares, convertible preference shares, and convertible debentures;
1[(iia) ‘entity incorporated outside India’ means an
entity incorporated/registered under the relevant statutes, laws of the host
country;]
(iii) ‘registered Foreign Institutional
Investor (FII)’ means the foreign institutional investor registered with SEBI;
2[(iiia) ‘Foreign Venture Capital Investor’ means an investor incorporated
and established outside India which proposes to make investment in Venture
Capital Fund(s) or Venture Capital Undertaking(s) in India and is registered
with SEBI under SEBI (Foreign Venture Capital Investors) Regulations, 2000;]
(iv) ‘Government approval’ means approval from
the Secretariat for Industrial Assistance (SIA), Department of Industrial
Policy and Promotion, Government of India or as the case may be, Foreign
Investment Promotion Board (FIPB) of the Government of India;
(v) ‘Indian company’ means a company
incorporated in India;
2[(va) ‘Indian Venture Capital Undertaking’ means a company incorporated
in India whose shares are not listed on a recognized stock exchange in India
and which is not engaged in an activity under the negative List specified by
SEBI;]
(vi) ‘Investment on repatriation basis’ means
an investment the sale proceeds of which are, net of taxes, eligible to be
repatriated out of India, and the expression ‘Investment on non-repatriation
basis’, shall be construed accordingly;
(vii) Joint Venture (JV) and Wholly Owned
Subsidiary shall have the meanings respectively assigned to them in the Foreign
Exchange Management (Transfer and Issue of Foreign Security) Regulations, 2000;
1[(viia)‘Non-resident Indian
(NRI)’ shall have the meaning assigned to it in clause (iv) of
Regulation 2 of the Foreign Exchange Management (Investment in Firm or
Proprietary Concern in India) Regulations, 2000;]
(viii) 2[***] ‘Overseas Corporate Body (OCB)’, shall have
the meanings respectively assigned to them in the Foreign Exchange Management
(Deposit) Regulations, 2000;
(ix) ‘SEBI’ means the Securities and Exchange
Board of India established under the Securities and Exchange Board of India
Act, 1992 (15 of 1992);
(x) ‘Secretariat for Industrial Assistance’
means Secretariat for Industrial Assistance in the Department of Industrial
Policy and Promotion, Ministry of Commerce and Industry, Govt. of India;
(xi) ‘Transferable Development Rights (TDR)’
shall have the same meaning as assigned to it in the Regulations made under
sub-section (2) of section 6 of the Act;
3[(xia) ‘Venture Capital Fund’ means a fund established
in the form of a trust, a company including a body corporate and registered
under the Securities and Exchange Board of India (Venture Capital Fund)
Regulations, 1996 which has a dedicated pool of capital raised in a manner
specified under the said Regulations and which invests in Venture Capital
Undertakings in accordance with the said Regulations;]
(xii) The words and expressions used but not
defined in these Regulations shall have the same meanings respectively assigned
to them in the Act.
Restriction on issue or transfer of Security by a person resident outside India.
Save as otherwise provided
in the Act, or rules or regulations made thereunder, no person resident outside
India shall issue or transfer any security:
Provided that a security issued
prior to, and held on, the date of commencement of these Regulations, shall be
deemed to have been issued under these Regulations and shall accordingly be
governed by these Regulations :
Provided further that the Reserve Bank may,
on an application made to it and for sufficient reasons, permit a person
resident outside India to issue or transfer any security, subject to such
conditions as may be considered necessary.
(1) Save as otherwise provided in the Act or
Rules or Regulations made thereunder, an Indian entity shall not issue any
security to a person resident outside India or shall not record in its books
any transfer of security from or to such person —
Provided that the Reserve Bank may,
on an application made to it and for sufficient reasons, permit an entity to
issue any security to a person resident outside India or to record in its
books transfer of security from or to such person, subject to such conditions
as may be considered necessary.
Permission for purchase of shares by certain persons resident outside India.
(1) A person resident outside India (other
than a citizen of Bangladesh or Pakistan or Sri Lanka) or an entity 1[incorporated outside India] (other than an entity in
Bangladesh or Pakistan), may purchase shares or convertible debentures of an
Indian company under Foreign Direct Investment Scheme, subject to the terms and
conditions specified in Schedule 1.
(2) A registered Foreign Institutional
Investor (FII) may purchase shares or convertible debentures of an Indian
company under the Portfolio Investment Scheme, subject to the terms and
conditions specified in Schedule 2 :
2[Provided that the
FII shall not purchase shares or convertible debentures of an Indian company
which is engaged in the print media sector.]
3[(3) (i) A Non-resident Indian (NRI) may purchase shares or
convertible debentures of an Indian Company on a Stock Exchange under Portfolio
Investment Scheme, subject to the terms and conditions specified in Schedule 3,
provided that the NRI shall not purchase shares or convertible debentures of an
Indian Company which is engaged in Print Media sector.
(ii) A Non-resident Indian 3a[***] may purchase
shares or convertible debentures of an Indian Company on non-repatriation basis
other than under Portfolio Investment Scheme subject to the terms and
conditions specified in Schedule 4, provided that the NRI 3b[***] shall not
purchase shares or convertible debentures of an Indian Company which is engaged
in Print Media sector.]
(4) A non-resident Indian 3a[***] or a registered
FII may purchase securities, other than shares or convertible debentures of an
Indian company, subject to the terms and conditions specified in Schedule 5.
4[(5) A Foreign Venture Capital Investor registered with SEBI may make
investment in a Venture Capital Fund or an Indian Venture Capital Undertaking,
in the manner and subject to the terms and conditions specified in Schedule 6
:]
2[Provided that the
Foreign Venture Capital Investor shall not purchase shares or convertible
debentures of an Indian company which is engaged in the print media sector.]
5[(6) A registered Foreign Institutional Investor (FII) having valid
approval under FERA, 1973 or under FEMA, 1999 may trade in all exchange traded
derivative contracts approved by SEBI from time to time subject to the limits
as prescribed by SEBI.
(7) A Non-Resident Indian (NRI) may invest in exchange traded derivative contracts approved by SEBI from time to time out of INR funds held in India on non-repatriable basis subject to the limits prescribed by SEBI. Such investments will not be eligible for repatriation benefits.]
(1) A person resident outside India may
purchase equity or preference shares or convertible debentures offered on right
basis by an Indian company which satisfies the conditions specified in
sub-regulation (2).
(2) An Indian company which satisfies the
following conditions, may offer to a person resident outside India, equity or
preference shares or convertible debentures on right basis, namely :—
(i) The offer on right basis does not
result in increase in the percentage of foreign equity already approved, or
permissible under the Foreign Direct Investment Scheme in terms of these
Regulations;
1[(ii) The existing non-resident shareholders may
apply for issue of additional shares, and the investee company may allot the
same subject to the condition that the overall issue of shares to non-residents
in the total paid-up capital does not exceed the sectoral cap;]
2[(iii)] The existing shares or debentures against
which shares or debentures are issued by the company on right basis were
acquired and are held by the person resident outside India in accordance with
these Regulations;
2[(iv)] The offer on right basis to the persons
resident outside India is at a price which is not lower than that at which the
offer is made to resident shareholders.
(3) The right shares or debentures purchased
by the person resident outside India shall be subject to same conditions
including restrictions in regard to repatriability as are applicable to the
original shares against which right shares or debentures are issued :
Provided that the amount of
consideration for purchase of right shares or debentures is paid by way of
inward remittance in foreign exchange through normal banking channels or by
debit to NRE/FCNR account, when the shares or debentures are issued on
repatriation basis:
Provided further that in respect of the
shares or debentures issued on non-repatriation basis, the amount of
consideration may also be paid by debit to NRO/NRSR/NRNR account.
3[Acquisition
of Bonus shares.
An Indian company may issue
bonus shares to its non-resident shareholders, subject to the following conditions :
(a) the shares against which bonus shares are
issued by the company (hereinafter referred to as ‘the original shares’) were
acquired or held by the non-resident shareholder in accordance with the
Rules/Regulations applicable to such acquisition;
(b) the bonus shares acquired by the
non-resident shareholder shall be subject to the same conditions including
restrictions in regard to repatriability as are applicable to the original
shares.
A company issuing right
shares or bonus shares in terms of Regulation 6 or Regulation 6A as the case
may be, shall, within thirty days from the date of issue, report the
transaction in Form FC-GPR to the Regional Office of the Reserve Bank of India
under whose jurisdiction in the Registered Office of the company is situated.]
Issue and acquisition of shares after merger or de-merger or amalgamation of Indian companies.
Where a Scheme of merger or
amalgamation of two or more Indian companies or a reconstruction by way of
de-merger or otherwise of an Indian company, has been approved by a Court in
India, the transferee company or, as the case may be, the new company may issue
shares to the shareholders of the transferor company resident outside India,
subject to the following conditions, namely :
(a) the percentage of shareholding of persons
resident outside India in the transferee or new company does not exceed the
percentage specified in the approval granted by the Central Government or the
Reserve Bank, or specified in these Regulations :
Provided that where the percentage
is likely to exceed the percentage specified in the approval or the
Regulations, the transferor company or the transferee or new company may, after
obtaining an approval from the Central Government, apply to the Reserve Bank for
its approval under these Regulations;
(b) the transferor company or the transferee
or new company shall not engage in agriculture, plantation or real estate business
or trading in TDRs; and
(c) the transferee or the new company files
a report within 30 days with the Reserve Bank giving full details of the shares
held by persons resident outside India in the transferor and the transferee or
the new company, before and after the merger/amalgamation/reconstruction, and
also furnishes a confirmation that all the terms and conditions stipulated in
the scheme approved by the Court have been complied with.
Issue of shares under Employees Stock Options Scheme to persons resident outside India.
(1) An Indian company may issue shares under
the Employees’ Stock Options Scheme, by whatever name called, to its employees
or employees of its joint venture or wholly owned subsidiary abroad who are
resident outside India, directly or through a Trust :
Provided that
(a) the scheme has been drawn in terms of
regulations issued under the Securities and Exchange Board of India Act, 1992;
and
(b) face value of the shares to be allotted
under the scheme to the non-resident employees does not exceed 5 per cent of
the paid-up capital of the issuing company.
(2) The Trust and the issuing company shall
ensure that value of shares held by persons resident outside India under the
scheme does not exceed the limit specified in clause (b) of
sub-regulation (1).
(3) The issuing company shall furnish to the
Reserve Bank, within thirty days from the date of issue of shares under the
scheme, a report giving the following particulars/documents,—
(i) names of persons to whom shares are
issued under the scheme and number of shares issued to each of them;
(ii) a certificate from the Company Secretary
of the issuing company that the value of shares issued under the scheme does
not exceed 5 per cent of the paid-up capital of the issuing company and that
the shares are issued in compliance with the regulations issued by the SEBI in
this behalf.
(1) Subject to the provisions of
sub-regulation (2), a person resident outside India holding the shares or
debentures of an Indian company in accordance with these Regulations, may
transfer the shares or debentures so held by him, in compliance with the
conditions specified in the relevant Schedule of these regulations.
1[(2)(i) A person resident
outside India, not being a non-resident Indian or an overseas corporate body,
may transfer by way of sale or gift the shares or convertible debentures held
by him or it to any person resident outside India;
(ii) A non-resident Indian 2[***] may transfer by
way of sale or gift, the shares or convertible debentures held by him or it to
another non-resident Indian 3[***]only :
Provided that the person to whom the
shares are being transferred, in terms of clauses (i) and (ii), has obtained
prior permission of Central Government to acquire the shares if he has previous
venture or tie up in India through investment in shares or debentures or a
technical collaboration or a trade mark agreement or investment by whatever
name called in the same field or allied field in which the Indian company whose
shares are being transferred is engaged :
Provided further that the restriction in
clauses (i) and (ii) shall not apply to the transfer of shares to International
Financial Institutions such as Asian Development Bank (ADB), International
Finance Corporation (IFC), Commonwealth Development Corporation (CDC),
Deutsche Entwicklungs Gesselschaft (DEG) and transfer of shares of an Indian
company engaged in Information Technology sector;
(iii) A
person resident outside India holding the shares or convertible debentures of
an Indian company in accordance with these Regulations,
(a) may
transfer the same to a person resident in India by way of gift;
(b) may sell
the same on a recognized Stock Exchange in India through a registered broker.]
Prior permission of Reserve Bank in certain cases for transfer of security.
A. Transfer by way of gift or sale by a person resident in India
A person resident in India
who proposes to transfer to a person resident outside India :—
(a) any security, by way of gift, shall make
an application to the Reserve Bank furnishing the following information, namely
:
(i) Name
and address of the transferor and the proposed transferee
(ii) Relationship
between the transferor and the proposed transferee
(iii) Reasons
for making the gift;
(b) any
share/convertible debenture of an Indian company, by way of sale,
shall obtain the
Government approval for the transfer and thereafter apply to the Reserve Bank
for its approval, which may be granted subject to such conditions as are
considered necessary by Reserve Bank, including the price at which such sale
may be made.
B. Transfer by way of sale not covered by Regulation 9 by a
person resident outside India
(1) Transfer by way of sale not covered by
Regulation 9 by a person resident outside India of the shares/convertible debentures
held by him to a person resident in India, shall require prior permission of
the Reserve Bank, for which application in Form TS 1 may be made to the Reserve
Bank.
(2) While considering the grant of permission,
the Reserve Bank shall take into account the following factors, namely :—
(a) where
the shares of an Indian company are traded on stock exchange,
(i) the sale is at the prevailing market
price on stock exchange and is effected through a merchant banker registered
with Securities and Exchange Board of India or through a stock broker
registered with the stock exchange;
(ii) if the transfer is other than that
referred to in clause (i), the Reserve Bank will satisfy itself that the
shares are proposed to be sold at a price arrived at by taking the average
quotations (average of daily high and low) for one week preceding the date of
application with 5 per cent variation. Where, however, the shares are being
sold by the foreign collaborator or the foreign promoter of the Indian company
to the existing promoters in India with the object of passing management-control
in favour of the resident promoters the proposal for sale will be considered at
a price which may be higher by upto a ceiling of 25 per cent over the price
arrived at as above,
(b) where the shares of an Indian company are
not listed on stock exchange or are thinly traded,
(i) if the consideration payable for the
transfer does not exceed Rs. 20 lakh per seller per company, at a price
mutually agreed to between the seller and the buyer, based on any valuation
methodology currently in vogue, on submission of a certificate from the
statutory auditors of the Indian company whose shares are proposed to be
transferred, regarding the valuation of the shares, and
(ii) if the amount of consideration payable
for the transfer exceeds Rs. 20 lakhs per seller per company, at a price
arrived at, at the seller’s option, in any of the following manner, namely:
(A) a price based on earning per share (EPS)
linked to the Price Earning (P/E) multiple, or a price based on the Net Asset
Value (NAV) linked to book value multiple, whichever is higher,
or
(B) the prevailing market price in small lots
as may be laid down by the Reserve Bank so that the entire shareholding is sold
in not less than five trading days through screen based trading system,
(c) where the shares are not listed on any
stock exchange, at a price which is lower of the two independent valuations of
share, one by statutory auditors of the company and the other by a Chartered Accountant
or by a Merchant Banker in Category 1 registered with Securities and Exchange
Board of India.
Explanation :
(i) A share is considered as thinly traded
if the annualised trading turnover in that share, on main stock exchanges in
India, during the six calendar months preceding the month in which application
is made, is less than 2 per cent (by number of shares) of the listed stock.
(ii) For the purpose of arriving at Net Asset
Value per share, the miscellaneous expenses carried forward, accumulated
losses, total outside liabilities, revaluation reserves and capital reserves
(except subsidy received in cash) shall be reduced from value of the total
assets and the net figure so arrived at shall be divided by the number of
equity shares issued and paid-up. Alternatively, intangible assets shall be
reduced from the equity capital and reserves (excluding revaluation reserves)
and the figure so arrived at shall be divided by the number of equity shares
issued and paid-up. The NAV so calculated shall be used in conjunction with the
average BV multiple of Bombay Stock Exchange National Index during the calendar
month immediately preceding the month in which application is made and BV
multiple shall be discounted by 40 per cent.
(iii) For computing the price based on Earning
Per Share, the earning per share as per the latest balance sheet of the company
shall be used in conjunction with the average Price Earning Multiple of Bombay
Stock Exchange National Index for the calendar month preceding the month in which
application is made and Price Earning shall be discounted by 40 per cent.
(1) No remittance of sale proceeds of an
Indian security held by a person resident outside India shall be made otherwise
than in accordance with these Regulations and the conditions specified in the
relevant Schedule.
(2) An authorised dealer may allow the
remittance of sale proceeds of a security (net of applicable taxes) to the
seller of shares resident outside India :
Provided—
(a) the
security was held by the seller on repatriation basis;
(b) either the security has been sold on a
recognised stock exchange in India through a stock broker at the ruling market
price as determined on the floor of the exchange, or the Reserve Bank’s
approval has been obtained in other cases for sale of the security and
remittance of the sale proceeds thereof; and
(c) a
no objection/tax clearance certificate from the income-tax authority has been
produced.
[K1]Inserted by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Third Amendment) Regulations, 2003, w.e.f. 3-10-2003.
[K2]Inserted by FEM (Transfer or Issue of Security by a Person Resident outside India (Amendment) Regulations, 2000, w.e.f. 26-12-2000.
[K3]Inserted by FEM (Transfer or Issue of Security by a Person Resident outside India (Amendment) Regulations, 2000, w.e.f. 26-12-2000.
[K4]Inserted by FEM (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2003, w.e.f. 18-6-2003.
[K5]Words “‘Non-resident Indian (NRI)’,”, omitted by FEM (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2003, w.e.f. 18-6-2003.
[K6]Inserted by FEM (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2000, w.e.f. 26-12-2000.
[K7]Substituted for “outside India, whether incorporated or not” by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Third Amendment) Regulations, 2003, w.e.f. 3-10-2003.
3Substituted by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2001, w.e.f. 29-11-2001. Prior to its substitution, sub-regulation (3) was amended by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2001, w.e.f. 16-2-2001
[K10]Words “or an Overseas Corporate Body” omitted by the FEM (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) Regulations, 2003, w.e.f. 3-10-2003.
[K11]Words “/OCB” omitted by the FEM (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) Regulations, 2003, w.e.f. 3-10-2003.
[K12]Words “or an Overseas Corporate Body” omitted by the FEM (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) Regulations, 2003, w.e.f. 3-10-2003.
[K13]Inserted by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2000, w.e.f. 26-12-2000.
[K14]Inserted by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2001, w.e.f. 16-2-2001.
[K15]Inserted by the FEM (Transfer or Issue of Security by a Person Resident outside India) (First Amendment) Regulations, 2003, w.e.f. 17-1-2003.
[K16]Inserted by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2002, w.e.f. 12-11-2002.
[K17]Clauses (ii) and (iii) renumbered as clauses (iii) and (iv) by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2002, w.e.f. 12-11-2002
[K18]Clauses (ii) and (iii) renumbered as clauses (iii) and (iv) by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2002, w.e.f. 12-11-2002
[K19]Inserted by the FEM (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2003, w.e.f. 18-6-2003.
[K20]Substituted by the FEM (Transfer or Issue of Security by a
Person Resident outside India) (Second Amendment) Regulations, 2003, w.e.f. 18-6-2003.
Prior to substitution, sub-regulation (2) read as under :
“(2)(i) A person resident outside India, not being a
non-resident Indian or an overseas corporate body, may transfer by way of sale,
the shares or convertible debentures held by him to any person resident outside
India :
Provided that the person to whom the shares are
being transferred has obtained prior permission of Central Government to acquire
the shares if he has previous venture or tie up in India through investment in
shares or debentures or a technical collaboration or a trade mark agreement or
investment by whatever name called in the same field or allied field in which
the Indian company whose shares are being transferred is engaged.
(ii) A non-resident Indian or an overseas corporate body may
transfer by way of sale, the shares or convertible debentures held by him or it
to another non-resident Indian or an overseas corporate body only.
(iii) A person resident outside India may transfer any security held by him, to a person resident in India by way of gift.”
[K21]Words “or an overseas corporate body” omitted by the FEM (Withdrawal of General Premission to Overseas Corporate Bodies (OCBs) Regulations, 2003, w.e.f. 3-10-2003
[K22]Words “or overseas corporate body” omitted by the FEM [Withdrawal of General Premission to Overseas Corporate Bodies (OCBs)] Regulations, 2003, w.e.f. 3-10-2003