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Saturday, August 7, 2010

Issue or Transfer of shares under FEMA: No more CCI guidelines pricing but Discounted Cash Flow technique for valuation: certification by Merchant banker/Chartered Accountant

Issue of shares

(a) After issue of shares (including bonus and shares issued on rights basis) and shares issued under ESOP)/ convertible debentures / convertible preference shares, the Indian company has to file Form FC-GPR, enclosed in Annex - 8, through it’s AD Category I bank, not later than 30 days from the date of issue of shares. The Form can also be downloaded from the Reserve Bank's website Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions.

Issue Price (for all issues other than Rights Issue)

  • Price of shares issued to persons resident outside India under the FDI Scheme, shall be on the basis of SEBI guidelines in case of listed companies.
  • In case of unlisted companies, valuation of shares has to be done by a SEBI registered Category I Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow Method (DCF) .
  • In case of issue of shares on preferential allotment the price shall not be less that the price as applicable to transfer of shares from resident to non-resident.

Issue Price (for Rights Issue)

  • Listed = @ the price determined by the Company.
  • Unlisted = Minimum price is the Rights Issue price to resident shareholders.

Transfer of Shares

Reporting of transfer of shares between residents and non-residents and vice- versa is to be made in Form FC-TRS (enclosed in Annex - 9). 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. 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, should forward the same to its link office. The link office should consolidate the Form FC-TRS and submit a monthly report to the Reserve Bank.

Transfer Price

  1. Transfer by Resident to Non-resident (i.e. to foreign national, NRI, FII and incorporated non-resident entity other than erstwhile OCB)
    • Listed = Minimum price as per Preferential Issue under SEBI ICDR regulation with date of purchase/sale as relevant date.
    • Unlisted = Minimum price as per Fair value under Discounted Cash Flow Method and certified by Merchant Banker or Chartered Accountant.
  2. Transfer by Non-resident (i.e. by incorporated non-resident entity, erstwhile OCB, foreign national, NRI and FII) to Resident
    • Should be within Minimum price as said in Transfer by Resident to Non-Resident above (for all issues).

Updated Notifications

  1. Foreign Exchange Management (Transfer or Issue of Security by a PersonResident Outside India) (Amendment) Regulations, 2010
  2. A. P. (DIR Series) Circular No.49 dated 4th May 2009

  3. Foreign Investment Master Circular July2010


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