Transfer Shares from Non Resident Indian to Non Resident

Foreign Exchange Management Act, 1999, has laid down the regulations for transfer of security from non-resident to resident.

As defined under Section 2(e) of Foreign Exchange Management Act, 1999 “Transfer” includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien.

Ways of Direct Foreign Investment:

• Automatic Route and Government Route are the ways of the foreign investor to enter into Indian Market. Foreign Investment under automatic route is allowed without prior approval of the Government or the Reserve Bank of India whereas under approval route FIPB approval is required.
• However, the overseas investment is not allowed in any prohibited sector notified by the RBI.

Foreign Investment in India:

Foreign investors can invest in Indian companies by purchasing/acquiring existing shares from Indian shareholders or from other non-resident shareholders. The above investment can be by way of following:

• Issue of Equity Shares issued in accordance with the Companies Act 2013;
• Fully convertible preference shares and fully convertible debentures. Wherein the price/ conversion formula of convertible instruments should be determined upfront at the time of issue of the instruments and should not, in any case, be lower than the fair value worked out, at the time of issuance of such instruments and shall be in accordance with FEMA.
• Any equity shares which is partly paid and warrants issued by an Indian company in accordance with the provision of the Companies Act, 2013 and the SEBI guidelines.
• The above instrument issued shall be in accordance with the policy and may be subject to the lock-in-period.
• The issue of Convertible Note by Start-up Company supporting receipt of money initially as debt, which will be repayable at the option of the holder or which can be converted into such a number of equity shares of such start-up company for the period of maximum five years from the date of issue of the convertible note.

Pricing Guidelines:

Fresh issue of shares: Price of fresh shares issued to person resident outside India under the FDI Scheme, shall be on the basis of SEBI guidelines in case of listed companies and not less than fair value of shares determined by a SEBI registered Merchant Banker or a Chartered Accountant as per as per any internationally accepted pricing methodology on arm’s length basis.

Mode of Payment:

An Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares /convertible debentures by way specified under regulation.

Modes of Foreign Investment:

• Issuance of fresh shares by Indian Company as mentioned above; and
• Acquisition by way of transfer of existing shares by person resident in or outside India

Modes of Transfer Shares:

• Transfer Shares from Resident to Non-Resident which is subject to floor price;
• Transfer Shares from non-resident to resident which is subject to ceiling;
• Transfer Shares from non-resident to another non-resident.

Transfer Shares from non-resident to another non-resident:

Parties involved in Transfer form Non-resident to Non-resident:

• Seller (Non- Resident)
• Buyer (Non- Resident)
• Duly authorized agent/s of the seller and/or buyer,
• Authorized Dealer bank (AD) branch
• Indian company, for recording the transfer of ownership in its books

Modes of Transfer Shares from non-resident to another non-resident:

• Non-resident to Non-resident by way of sale / Gift:

A person who is residing outside India (other than NRI and OCB) may transfer by way of sale or gift shares or convertible debentures to any person resident outside India (including NRIs but excluding OCBs).

However, transfer Shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.

• Non –resident Indian to another Non-resident Indian by way of Sale/ Gift:

NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.

• Other Situation:

  • NRI’s may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.
  • A person resident outside India can transfer any security to a person resident in India by way of gift.
  • 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 the stock exchange or a merchant banker registered with SEBI subject to fulfillment of conditions.
  • Subject to the provisions of regulations, 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 held by him, in compliance with the conditions specified in the relevant Schedule of these regulations.
  • 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.
  • A non-resident Indian may transfer by way of sale or gift, the shares or convertible debentures held by him or it to another non-resident Indian provided compliances of below:

Person in whose favour of the shares are being transferred, as above, has to obtained prior permission of Central Government to acquire the shares, if he has the previous venture or tie up in India through investment in shares or debentures or a technical collaboration or a trademark agreement or investment by whatever name called in the same field or associated field in which the Indian company whose shares are engaged.