Query on Transfer of Shares
VIKAS GUPTA
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THANKYOU
CS VIKAS GUPTA
Havells India Limited
9953620278
http://www.vikas1052.blogspot.com/
K. Sankara Subramanian
In December, 2010, one of our promoter shareholder transferred her shares to a PE Investor, Mauritius. Procedure: Board Resolution, Share Purchase Agreement, Valuation of Shares by a Chartered Accountant (which is now not required) and filing of Form FC-TRS with authorized dealer bank.
please go through the link:
http://www.rbi.org.in/scripts/FAQView.aspx?Id=26
Q.7. What are the guidelines for transfer of existing shares from non-residents to residents or residents to non-residents?
Ans. The term ‘transfer’ is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien” {Section 2 (ze) of FEMA, 1999}.
The following share transfers are allowed without the prior approval of the Reserve Bank of India
A. 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 :-
i. 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.;
ii. 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
iii. 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.
B. Transfer of shares from Resident to Non Resident:
i) where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that :
a) the requisite approval of the FIPB has been obtained; and
b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.
ii) where SEBI (SAST) guidelines are attracted subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.
iii) where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met 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.; b) 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.
iv) where the investee company is in the financial sector provided that :
a) NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and
b). The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.
Where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.
Transfer of shares/ fully and mandatorily convertible debentures by way of Gift:
A person resident outside India can freely transfer shares/ fully and mandatorily convertible debentures by way of gift to a person resident in India as under:
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Any person resident outside India, (not being a NRI or an erstwhile OCB), can transfer by way of gift the shares/ fully and mandatorily convertible debentures to any person resident outside India;
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a NRI may transfer by way of gift, the shares/convertible debentures held by him to another NRI only,
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Any person resident outside India may transfer share/ fully and mandatorily convertible debentures to a person resident in India by way of gift.
Q.8. Can a person resident in India transfer security by way of gift to a person resident outside India?
Ans. A person resident in India who proposes to transfer security by way of gift to a person resident outside India [other than an erstwhile OCBs] shall make an application to the Central Office of the Foreign Exchange Department, Reserve Bank of India furnishing the following information, namely:
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Name and address of the transferor and the proposed transferee
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Relationship between the transferor and the proposed transferee
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Reasons for making the gift.
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In case of Government dated securities, treasury bills and bonds, a certificate issued by a Chartered Accountant on the market value of such securities.
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In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.
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In case of shares/ fully and mandatorily convertible debentures, a certificate from a Chartered Account on the value of such securities according to the guidelines issued by the Securities & Exchange Board of India or the Discount Free Cash Flow Cash (DCF) method with regard to listed companies and unlisted companies, respectively.
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Certificate from the Indian company concerned certifying that the proposed transfer of shares/convertible debentures, by way of gift, from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company.
The transfer of security by way of gift may be permitted by the Reserve bank provided:
(i) The donee is eligible to hold such security under Schedules 1, 4 and 5 to Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.
(ii) 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
(iii) The applicable sectoral cap/ foreign direct investment limit in the Indian company is not breached
(iv) The donor and the donee are relatives as defined in section 6 of the Companies Act, 1956.
(v) The value of security to be transferred by the donor together with any security transferred to any person residing outside India as gift in the financial year does not exceed the rupee equivalent of USD 50000.
(vi) Such other conditions as considered necessary in public interest by the Reserve Bank.
Q.9. What if the transfer of shares from resident to non-resident does not fall under the above categories?
Ans.
Transfer of Shares by Resident which requires Government approval
The following instances of transfer of shares from residents to non-residents by way of sale or otherwise requires Government approval:
(i) Transfer of shares of companies engaged in sector falling under the Government Route.
(ii) Transfer of shares resulting in foreign investments in the Indian company, breaching the sectoral cap applicable.
Prior permission of the Reserve Bank in certain cases for acquisition / transfer of security
i) Transfer of shares or convertible debentures from residents to non-residents by way of sale requires prior approval of Reserve Bank in case where the non-resident acquirer proposes deferment of payment of the amount of consideration. Further, in case approval is granted for the transaction, the same should be reported in Form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.
(ii) A person resident in India, who intends to transfer any security, by way of gift to a person resident outside India, has to obtain prior approval from the Reserve Bank.
Any other case not covered by by General Permission.
Q 10. What are the reporting obligations in case of transfer of shares between resident and non-resident ?
Ans. The transaction should be reported by submission of form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt/remittance of the amount of consideration. The onus of submission of the form FC-TRS within the given timeframe would be on the resident in India, the transferor or transferee, as the case may be.
Q.11. What is the method of payment and remittance/credit of sale proceeds in case of transfer of shares between resident and non-resident?
Ans. 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.
The sale proceeds of shares (net of taxes) sold by a person resident outside India) may be remitted outside India. In case of FII the sale proceeds may be credited to its special Non-Resident Rupee Account. In case of NRI, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE/FCNR(B) accounts and if the shares sold were held on non repatriation basis, the sale proceeds may be credited to his NRO account subject to payment of taxes. The sale proceeds of shares (net of taxes) sold by an erstwhile OCB may be remitted outside India directly if the shares were held on repatriation basis and if the shares sold were held on non-repatriation basis, the sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the case of erstwhile OCBs whose accounts have been blocked by Reserve Bank.
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CS K.Sankara Subramanian,
Company Secretary
Cethar Energy Limited
Pranav Ganguli
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.
The sale consideration in respect of the shares purchased by a person resident outside Indiashall 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.
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.
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.
Certificate indicating fair value of shares from a Chartered Accountant.
Copy of Broker‘s note if sale is made on Stock Exchange
Copy of FIRC evidencing receipt of money.
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.
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.
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.