FAQ on Transferring of Shares

1. What documents are to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift? 

Documents to be presented by a resident person for the transfer of shares by gift to a person residing outside India: (i) the name and address of the transferor (donor) and the transferee (donee). (ii) The transferee's relationship with the transferor. Iii) Reasons for the gift being made. (iv) In the case of government-dated securities and treasury bills and notes, a certificate of the market value of the securities issued by the CA. (v) In the case of domestic mutual funding units and Money Market Mutual funding units, the issuer shall issue a certificate of the Net Asset Value of that security. (vi) In the case of shares and convertible debentures, the Chartered Accountant’s shall certify the valuation of such securities in accordance with the guidelines provided by the Securities & Exchange Board of India or in accordance with any globally recognized length-based pricing methodology for listed companies and unlisted companies. (vii) Certificate from the Indian company concerned certifying that the proposed transfer of shares / convertible debentures by way of a gift from a resident to a non-resident company is not in violation of the applicable sectoral cap / FDI limit in the company and that the proposed number of shares / convertible debentures to be owned by a non-resident transferee does not exceed 5% of the paid-up capital of the company. (viii) An assurance from a resident transferor that the security value to be transferred to any person residing outside India together with any security already transferred by the transferor as a gift shall not exceed a rupee equivalent of $50,000 during the financial year *. (ix) A statement of recognition by the donor of partially paying shares or warrants that the donor is aware of the responsibility in respect of calls in arrears and their effects.

2. What is the Sponsored American Depository System/ Global Depository System issue?

An Indian company can sponsor an ADR / GDR issue. Under this mechanism, the company offers its resident shareholders the option of returning their shares to the company so that ADRs / GDRs can be issued abroad on the basis of those shares. The proceeds from the issue of the ADR / GDR are returned to India and distributed among the resident investors who have offered to convert their Rupee denominated shares.

3. What documents are required for the sale of shares by a person resident in India?

For the selling of shares by an individual residing in India, the following documents are required: 

1. a letter of consent duly signed by the seller and buyer or their duly appointed agent indicating the details of the transfer, i.e. the number of shares to be transferred, the name of the investor whose shares are being transferred, and the price at which the shares are being transferred. If no formal purchase agreement exists, letters exchanged, for this reason, can be kept on record. 

(ii) The Power of Attorney Contract executed by the seller/buyer authorizing the agent to purchase/sell shares, where the consent letter has been signed by their duly appointed agent. 

(iii) The shareholding pattern of the investee business following the acquisition of shares by an individual resident outside India showing the category-wise equity interest of residents and non-residents (i.e. NRIs / OCBs / foreign nationals / incorporated non-resident entities / FIIs, FPIs) and its percentage of the paid-up capital acquired from the business by the vendor/buyer or their duly appointed agent where the vendor/buyer or their duly appointed agent has acquired from the company.

(iv) A certificate specifying the equal value of a Chartered Accountant's shares. 

(v) a copy of the note from the broker if the offer is made on the stock exchange. 

(vi) The purchaser's undertaking to the extent that it is entitled to buy shares / convertible debentures has complied within the light of the FDI policy and the current sectoral limits and the Pricing Guidelines. 

(vii) FII / sub-account undertaking to the effect that the individual FII / Sub account limit as prescribed by SEBI has not been infringed until it is registered as FPI. 

4. What is the list of cases where prior approval is needed by RBI to transfer capital instruments?

The following cases require RBI's prior approval: the transfer by way of sale of capital instruments from resident to non-resident where: the transfer is at a price that falls beyond the pricing guidelines laid down by RBI The transfer by a non-resident acquirer of capital instruments involves deferment of payment of the amount of consideration. Transfer of capital instruments to a person residing outside India by way of a gift from a person residing in India.

5.What is the duration within which capital instruments need to be issued, post receiving inward remittances?

Capital instruments should be released within 180 days of the date of receipt of the inward remittance obtained by the non-resident investor via ordinary banking channels, including the escrow account or by debit to the NRE / FCNR(B) account. In the event that capital instruments are not released during this span, the amount obtained should be reimbursed to the non-resident investor immediately by outward remittance through normal banking channels or, as the case may be, by a credit to the NRE / FCNR(B) account. Under the Foreign Exchange Management Act, non-compliance with this would be counted as contravention and would draw punitive provisions. In exceptional cases, the Reserve Bank of India may, on the merits of the case, consider the reimbursement of the amount outstanding beyond 180 days from the date of receipt.

6. What is the procedure for reporting the issue of shares against the conversion of External Commercial Borrowing?

In the case of a partial or complete conversion of external commercial borrowing (ECB) into equity, reporting to the Reserve Bank of India ( RBI) shall take place as follows: for partial conversion-The converted portion shall be reported to the Regional Office of the RBI Foreign Exchange Department concerned in the form of FCGPR and to the Department of Statistics and Information Management (DSIM) in the form of a monthly report to the RBI Foreign Exchange Department concerned. For staggered conversion-Reporting, via the ECB 2, The return will also be in phases.

7. What is the procedure for reporting of transfer of shares?

The transfer of shares between residents and non-residents shall be recorded and vice versa in Form FC-TRS (Section-4). Type FC-TRS should be sent to the AD Category-I bank within 60 days of receipt of the considerable number.

8. Is it possible for Indian Companies to issue employees' stock options and/or sweat equity shares?

Yes, under the provisions of the Companies Act 2013 and SEBI Act 1992, an Indian company can issue "employee stock options" and/or "sweat equity shares" to its employees/directors or employees/directors of its holding company or joint venture or wholly-owned overseas subsidiary/ subsidiaries resident outside India.

9. Would I be able to get financing support from Make in India?

As part of a larger range of nation-building measures, the Make in India initiative was initiated by the Prime Minister in September 2014.

10. What is debt restructuring of advances? 

Debt restructuring is an act where a lender grants concessions to the borrower for economic or legal purposes related to the financial distress of the borrower. Restructuring typically includes modifying the terms of the advances/securities, which will typically include but are not limited to, modifying the repayment duration, repayable amount, number/amount of installments, interest rate, rollover of credit facilities, a penalty of new credit facilities, improvement of established credit limits, compromise settlements where settlers are expected to pay.

11. Who is a Foreign Venture Capital Investor (FVCI)? 

FVCI refers to a capital investor incorporated and founded outside India that is registered under the Regulations 2000 {SEBI (FVCI) Regulations} of the Securities and Exchange Board of India (Foreign Venture Capital Investor) and proposes to make investments in accordance with the FDI Regulations.

12. Is the transfer of shares to non-residents/ NRIs permitted as per the FDI policy? 

General approval for the acquisition of shares by way of transfer is given to non-residents / NRIs in the following situations: 

1) Transfer of shares in the investee business from one non-resident business to another non-resident company in the automatic sectors. Government approval is required for the transfer of stakes from one non-resident to another non-resident in sectors protected by the route of government approval.

2) NRIs may transfer by sale or gift shares or convertible debentures to another NRI. 

3) Person resident outside India may transfer any protection by gift to a person resident in India.

4) An individual resident outside India can sell shares and convertible shares

Debtors of an Indian company on a recognized stock exchange in India through a registered stockbroker or a registered merchant banker 

5) A person resident in India can transfer shares / convertible debentures (including transfers of subscriber shares) of an Indian company to a person resident outside India by way of sale under a private agreement, subject to the FDI Policy Guidelines 

13. Are NRIs(Non-Resident Indians) allowed to invest in sole proprietorship in India?

The NRI or a person of Indian origin (PIO) can invest on a non-repatriable basis in a sole proprietorship/partnership company, with the exception of those in the agricultural, plantation, real estate, or print media business. NRIs / PIO can obtain prior permission from the Reserve Bank Of India to invest in sole proprietorship/partnership companies with the option of repatriation.

14. What are the regulations on Remittance on winding up/liquidation of Companies?

AD Category-I banks were authorized to pay liquidation proceeds to the liquidation companies in India, subject to payment of the relevant taxes. In the event of voluntary liquidation pursuant to the provisions of the Companies Act 2013, liquidation may be subject to any order issued by the court liquidating the company or the official liquidator, as applicable. AD Category-I banks shall provide for remittance when submitted by the applicant: 

(a) No opposition or tax clearance certificate for remittance from the Income Tax Department. (b) Auditor's certificate stating that all liabilities have been incurred in India

Either completely compensated or reasonably provided for. 

(c) Certificate of the auditor that the liquidation is in accordance with the rules of the Companies Act, as applicable. 

(d) In the event of liquidation, other than by a judge, an auditor's certificate to the effect that no legal proceedings have been rendered against the claimant or the company under liquidation in any judge in India and that there is no legal impediment to the authorization of remittance. 

15. What is the capability criteria concerning the Trustee in InvITs?

The eligibility requirements for the award of a trustee's certificate in the Infrastructure Investment Trusts (InvITs) are that the trustee is registered with SEBI under the SEBI (Debentures Trustees) Regulations, 1993 and is not an associate of the sponsor or manager that the trustee has such qualifications to the satisfaction of SEBI in terms of infrastructure, staff, etc. and in compliance with the circular rules.

16. What are the guidelines to be followed in the event of a delay in issuing capital instruments?

If the capital instruments are not released by the Indian company within 60 days of the date of receipt of the inward remittance, the amount thus received shall, as the case may be, be refunded to the person concerned by outward remittance through the banking channels or by a credit to the external non-resident (NRE)/foreign currency non-resident (FCNR) (B) accounts of the person concerned within 15 days of the date of receipt of the inward remittance. Notwithstanding the fact that interest for delayed refunding has been charged under the Companies Act, 2013, non-compliance with the instructions is contrary to Foreign Exchange Management Act 20(R).

17. What is meant by Downstream Investment?

'Downstream Investment' means, by subscription or acquisition, indirect foreign investment by an eligible Indian entity into another Indian company / LLP.

18. What documents are required for the sale of shares by a person resident outside India?

DOCUMENTS REQUIRED FOR THE SALE OF SHARES BY A Individual RESIDENT OUTSIDE IN INDIA: 

I A letter of consent duly signed by the seller and the buyer or their duly appointed agent indicating the details of the transfer, i.e. the number of shares to be transferred, the name of the investee company whose shares are transferred, and the price at which the shares are transferred. 

(ii) Where the Power of Attorney contract authorizing the agent to purchase/sell securities by the seller/buyer has been signed by their duly appointed agent in the letter of consent. If no formal purchase agreement exists, letters exchanged, for this reason, can be kept on record. 

(iii) If the sellers are NRIs / OCBs, the copies of RBI approvals on the basis of repatriation / non-repatriation show the shares owned by them. The sales proceeds shall, as appropriate, be credited to the NRE / NRO account. 

(iv) A certificate showing the equal value of the Chartered Accountant's shares. 

1. V) No Objection / Tax Clearance Certificate from the Chartered Accountant’s / Income Tax Authority. (vi) The purchaser's undertaking to the extent that the Pricing Criteria have been followed.

19. What is the method of payment and remittance/credit of sale proceeds for a person residing outside India?

The selling consideration relating to the shares acquired by an individual residing outside India shall be transferred to India via regular banking channels. If the purchaser is an FII, FPI, payment to its Separate Non-Resident Rupee Account should be made by debit. If the buyer is an NRI, payment can be made to his NRE / FCNR(B) accounts by debit. However, if the shares are purchased by NRI on a non-repatriation basis, the consideration shall be transferred to India through the usual banking channel or paid out of funding kept in the accounts of NRE / FCNR(B)/NRO. The profits from the selling of shares (net of taxes) sold by a person residing outside India can be transferred outside of India. In the case of FII / FPI, its special Non-Resident Rupee Account may be credited with the selling proceeds. In the case of NRI, if the shares sold were held on a repatriation basis, the proceeds from the sale (net of taxes) may be credited to its NRE / FCNR(B) accounts and, if the shares sold were held on a non-repatriation basis, the proceeds from the sale may be credited to its NRO account subject to tax payment. The selling proceeds of the shares (net of taxes) sold by the OCB may be remitted directly outside India if the shares were kept on the basis of repatriation and if the shares sold were kept on the basis of non-repatriation, the sale proceeds may be credited to its NRO (Current) Account subject to the payment of taxes, with the exception of OCBs whose accounts were blocked by the Reserve Bank Of India.

20. What is meant by ‘AD Category-I Bank'?

'AD Category-I Bank' means a bank (Scheduled Commercial, State, or Urban Cooperative) approved by FEMA pursuant to Section 10(1) to conduct from time to time all current and capital account transactions in accordance with the instructions provided by the RBI.

21. Are dividends repatriable?

Dividends are easily repatriable (net after source tax deduction or dividend distribution tax, if any, as the case may be) without any limitations. The terms of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, control repatriation.

22. Are foreigners allowed to invest in India?

Except in those sectors which are prohibited, a non-resident entity can invest in India, subject to the prevailing FDI policy. The Foreign Institutional Investor (FII) and the Foreign Portfolio Investor (FPI) can, subject to FEMA provisions, invest in the capital of an Indian company under the Portfolio Investment Scheme.

23. What are the project funding options available in India?

Via sources such as bank loans, private equity, public subscriptions, debt instruments, and government approval, projects in India can be funded. If you are a startup or an SME, you will be able to register with Startup India. You may also register with India Investment Grid, our repository for investment ventures.

24. Are Non-Resident Indians allowed to make investments in India?

On a non-repatriation basis, an NRI can invest in the capital of Indian companies provided that the sum is invested by inward remittance or from the NRE / FCNR(B)/NRO account held with Approved Dealers / Approved Banks. The entity is not interested in the business of agriculture/plantation or real estate, or the building of farmhouses, or the transfer of development rights. The sum invested is not eligible outside of India for repatriation. Provisions of the FDI framework refer to investments on a repatriable basis.

25. Where can complaints against the listed companies be registered?

The SEBI Complaints Redress System (SCORES) is an online platform designed to help investors file their stock market complaints online with SEBI against listed companies and registered intermediaries with SEBI. All complaints against listed companies and SEBI registered intermediaries received by SEBI shall be dealt with by SCORES.

26. What is the Foreign investment facilitation board?

The Foreign Investment Facilitation Platform (FIFP) is the Government approval of India's new online single-point investor gateway to promote Foreign Direct Investment. This portal is operated by the Ministry of Commerce & Industry's Department for the Promotion of Industry and Internal Trade ( DPI).

27. What is the procedure for issuing Foreign Currency Convertible Bonds?

For Listed Companies Any Indian company not entitled to collect Indian capital funding from

SEBI is not qualified to issue FCCB though overseas corporate bodies are not qualified to invest in India via portfolio and entities barred from buying, selling, or trading in securities by SEBI are not eligible to subscribe to FCCB GDR / FCCB pricing should not be less than the higher of either the weekly average high or low closing prices of the FCCB. For companies of unlisted companies that have GDR / FCCB route for capital raising on the international market not yet assessed Need to be listed on the domestic market Companies that have already issued GDR / FCCB on the international market will either need to be listed on the domestic profit-making market from 2005-06 or within 3 years of being listed on the domestic market.

28. What is the subsidy under Micro Units Development and Refinance Agency?

The loan issued under the Pradhan Mantri Mudra Yojana (PMMY) is not subsidized. However, if the application for a loan is related to a government scheme under which the government provides capital subsidies, it will also be liable under the PMMY.

29 Could ECB be profited for reimbursement of local INR credit?

However, it is only allowed if external commercial borrowing (ECB) is obtained from direct and indirect holders of equity or from a group company and the loan has a minimum average maturity of five years. The ECB, raised for repayment of Rupee loans under Tracks I or III, must be raised from a foreign equity holder.

30. What are the reporting requirements for foreign currency convertible bond/depository receipts Issues?

The domestic custodian needs to report the issue/transfer of sponsored/unsponsored depositary receipts as per DR Scheme 2014 in ‘Form DRR’ given in Section 5, Annexure 6 of the Consolidated FDI Policy, 2017, within 30 days of the close of the issue/ program.

31. What is a Two-way Fungibility Scheme?

The Government of India for American Depository Receipts (ADR)/ Global Depository Receipts (GDR) has placed in place a restricted two-way Fungibility Scheme. Under this scheme, on the basis of instructions obtained from overseas investors, a stockbroker in India registered with the Securities & Exchange Board of India ( SEBI) may buy shares of an Indian company from the market for conversion into ADR / GDR. To the extent of ADR / GDR which has been redeemed into underlying shares and sold on the Indian market, re-issuance will be allowed.

32. Which bodies and organizations can be classified as Funding Bodies?

As per the notice no. G.S.R 180(E) of 17 February 2016 can be listed as Funding Bodies by Alternative Investment Funding, Venture Capital funding, Angel Funding, and Seed funding registered with SEBI. Such bodies are entitled to provide letters of recommendation/support/endorsement to Entities in which such funding absorbs more than 20 percent equity. On the Startup India portal, a list of SEBI registered VCFs and AIFs has been released.

33. What is a ‘Foreign Institutional Investor’? 

An entity founded or incorporated outside India which, in accordance with the Securities and Exchange Board of India (SEBI) (Foreign Institutional Investor) Regulations 1995, proposes to invest in India and is registered as an FII.