Twitter Logo Youtube Circle Icon LinkedIn Icon

India > Legal Developments > Law firm and leading lawyer rankings

Editorial

Liberalization Back on Track with the Relaxation of Share Transfer Norms

November 2011 - Finance. Legal Developments by kanga & co.

More articles by this firm.

Soon after the rollback of the much criticized aspect of the Consolidated Foreign Direct Investment policy dated October 1, 2011 which treated foreign investments in Indian securities as external commercial borrowings in case such investments conferred options on the foreign investors, the policy makers have brought more good news for the investor community.

In a recent announcement from the Reserve Bank of India (RBI), the provisions relating to transfer of shares between Indians and non-residents have been further liberalized.

The situation before

The transfer of shares from a resident to a non-resident in the following situations required prior approval of RBI: (i) where the transfer was not in accordance with RBI’s pricing guidelines; or (ii) where the transfer of shares required prior approval of the Foreign Investment Promotion Board under the extant Foreign Direct Investment Policy (“FDI Policy”); or (iii) the Indian company whose shares are being transferred is rendering any financial service; or (iv) when the transfer falls under the purview of the SEBI Substantial Acquisition of Shares and Takeover Regulations (“SAST”).

In addition to the above, prior approval from RBI was also mandatory for transfer of shares from a non-resident to a resident which did not conform to RBI’s pricing guidelines.

The present scenario

With a view to rationalise the procedure for making investment in India, the RBI vide its circular dated November 3, 2011, has curtailed its power by doing away with the requirement of its prior approval in the following situations:

I. In case of transfer of shares from resident to non-resident:

·         where the transfer of shares requires prior approval from FIPB, and the same has been obtained as also the RBI’s pricing guidelines and documentation requirements are met with;

·         where SAST guidelines are attracted, transfer adheres to the pricing and documentation requirements of RBI;

·         where RBI’s pricing guidelines are not complied with, if the resultant FDI adheres to the FDI Policy (with respect to sectoral caps, documentation, reporting requirements etc.), pricing is in conformity with the applicable SEBI regulation/guideline and certificate of compliance given by Chartered Accountant is attached to the form FC-TRS filed with the Authorised Dealer Bank (“AD Bank”);

·         where the investee company is in the financial sector, if NOC from the respective financial sector regulator of the investee company as well as the transferor and transferee entities are attached to the form FC-TRS filed with the Authorised Dealer Bank.

II. In case of transfer of shares from non-resident to resident:

·         where the pricing guidelines are not complied with, but however the original and resultant investments are in compliance with the FDI Policy (with respect to terms of sectoral caps, documentation, reporting requirements etc.), pricing is in conformity with the applicable SEBI regulation/guideline and certificate of compliance given by Chartered Accountant is attached to the form FC-TRS filed with the AD Bank.

Concluding words

The recent reforms showcases the willingness of the policymakers to curtail their own powers in order to take the country several steps forward in its march to become the most favoured investment destination.


For more information please visit www.kangacompany.com

GC Powerlist -
India