As a measure of liberalisation of the existing procedures, it has been decided to permit the IFCs to avail of ECBs, including the outstanding ECBs,
Source: A. P. (DIR Series) Circular No. 51 dated 11th May 2010
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Know Law
Labz India Notification 12 of 2012
A written-cum-video initiative to know your corporate legal position as on date
Legal Queries???
How to utilize & escalate your company’s resources? Are you confident that you have utilised the company's resource to the fullest potential!!! What is your market capitalisation of the company? Do you want your declaration of financial results to be a national affair? Have you exploited all sources of funding for your business? Whether your company is enjoying a bigger brand value across the globe? Are you exploring the possibilities of various funding options internationally? How to raise money from abroad? Do you want to list your company in foreign stock exchanges like NASDAQ, London Stock Exchange, Australian Stock Exchange? Have you heard about depository receipts and how does it works? What are the instruments available ro raise money? Can foreigners invests in an Indian company through secondary market with less compliance requirement? Can an Indian company lists abroad without having any overseas branches of its office?
Solution…
International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges
Raising money from abroad is a good option provided you have a feasible and viable project in hand, since there more investors abroad when compared to India. This option can be utilized by a company interested in capturing resources of international market, provided it complies with the criterion of past track record & performances as prescribed.
International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges requires approval under Company laws, Securities laws, FEMA regulations, approvals of FIPB and approvals of stock exchange from abroad and India. This process involves preparation of offer documents, appointment of market intermediaries like merchant banker, satisfying criterion with depositories and custodian banks in India and abroad, collecting investments, issuing shares and listing in stock exchanges abroad. Read More...
Requirement under Indian laws on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges:
Indian laws treat the depository receipt as foreign direct investment. The law permits denomination of securities in freely convertible foreign currency and can be floated abroad in countries like United States, European Union, Australia with less procedural requirement the respective countries regulators like Securities Exchange Commission. The FEMA regulations read with Depository receipt mechanism provides for issue of securities abroad and conversion of the bonds/instruments in foreign currency into underlying equity shares with voting rights in India after a cooling period through various intermediaries like Overseas Custodian Bank, Domestic depository in India, etc… In certain cases, the Ministry of Finance and Department of Economic Affairs may be required in addition to the one-time and periodical reporting requirement under Reserve Bank of India (RBI) regulations.
Myth buster on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges:
Huge formalities involved as to lock-in period of securities, the limits on number of issues per year, the end-use restrictions & lot of regulatory approvals required!!! No, the issue process is a plain vanilla procedure with simple conditions on issue expenses and two-stage reporting requirements like a foreign direct investment into India. The value of money that can be raised as a tap issue or as tranches has no limit as per Indian laws. Further, the amount so raised may be used for whatsoever purposes unless it is an instrument like Foreign Currency Convertible Bonds (FCCB’s) where there is a restriction as applicable to External Commercial Borrowings (ECB). Even further, the procedural clearance abroad for issues in alternate investment market of their country is relatively simple.
Caution point on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges!!!
The compliance of requirements of Indian Company law as to issue of shares shall be duly complied with and necessary e-forms are filed with Registrar of Companies on time. The pricing shall be done based on the date of meeting as to the closing average high & low prices of shares in Indian Stock Exchanges. Agreements with intermediaries shall be entered into. Care should be taken while drafting the Offering Circular, the prospectus like offer document which should provide for all information that is required for an investor to take decision. The prior approval of Reserve Bank of India may be required based on the sectoral cap under Foreign Direct Investment Regulations. Also ensure the in-principle approval for listing is obtained from the stock exchanges for issue of securities in India. Even the benefit of double taxation avoidance agreement can be enjoyed for depository receipts. Ensure the RBI reporting shall be done promptly on 30 days of closure of issue and a quarterly reporting within 15 days.
WATCH LAWLABZ VIDEO on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges in India!!! (Click Here):
At Lawlabz, we offer 360O Personalized VIRTUAL Corporate Solutions by offering COMPLETE online legal support for your organization since its set-up as your entrepreneurial venture, during its management as a corporate entity or a manufacturing industry and closure of unwanted company’s which are not having any significant business of its own.
Legally Yours,
Happy Consulting with www.lawlabz.com
For Private Circulation Only. The copyright of this notification is retained by Lawlabz. Notwithstanding anything contained herein, this notification does not amount to opinion or consultation of any nature. One Pager
A Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme was notified in 1993 to allow the Indian Corporate sector to access global capital markets through issue of Foreign Currency Convertible Bonds (FCCB)/Equity Shares under the Global Depository Receipt Mechanism (GDR) and American Depository Receipt Mechanism (ADR). The Scheme has been amended several times since then.
Amendment: On or before 15th August 2010 (6 month period from 15th February 2010), the corporates have the option to revise from OLD CONVERSION PRICE norms to NEW CONVERSION PRICE norm (as below) for FCCB’s. The said revision of conversion price is subject to the following conditions:
Source: Ministry of finance Press Note F.No.9/3/2009-ECB dated 15th February 2010.
[Old Conversion Price]FCCB Pricing Norm prior to 27th November 2008:
Listed Companies – The pricing should not be less than the higher of the following two averages:
(i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock
exchange during the six months preceding the relevant date;
(ii) The average of the weekly high and low of the closing prices of the related shares quoted on a stock
exchange during the two week preceding the relevant date.
The “relevant date” means the date thirty days prior to the date on which the meeting of the general body of shareholders is held, in terms of section 81 (IA) of the Companies Act, 1956, to consider the proposed issue.”
[New Conversion Price]FCCB Pricing Norm from 27th November 2008: similar to QIP pricing under ICDR
Listed Companies – The pricing should not be less than the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date; [avg 2 weeks high & low]
The “relevant date” means date of the meeting in which the Board of the company or the Committee of Directors duly authorized by the Board of the company decides to open the proposed issue.”
Source: FINMIN
Know Law
Labz Notification 10 of 2011
A written-cum-video initiative to know your corporate legal position as on date
Legal Queries???
What are restrictions in foreign inflow? What are the FDI compliances with RBI? What are the ECB compliances with RBI? What are the FCCB/GDR/ADR compliances with RBI? Is there any annual return with RBI like that under Company laws? What are the consequences of non-filing of returns with RBI? When you are falling under Automatic route of FEMA, is there any reporting requirement with RBI? What happens if the inflow is not under automatic route? Is SEZ mandated by RBI for such reporting? What is the reporting procedure? What are the legal requirements in India when foreign exchange is involved in a company’s capital account transaction?
Solution…
FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction
The compliances under Foreign Exchange Management Act (FEMA) arise, when there is an inflow or outflow of foreign exchange. When dealing with bank accounts situated outside India or in India, you might not realize the indirect effect on foreign exchange which mandate FEMA compliances. In India, most of the current account transaction mandates reporting arrangements, whereas certain capital account transaction require approvals from the Central Bank namely Reserve Bank of India.
FEMA being an ever changing law in India, the legalization of a transaction and its dealings is a voluminous task. The approvals, intimations & reporting have to be done keeping in mind the legal updated applied with practical skills. At Lawlabz we can facilitate the same for your company’s transactions. Read More...
Requirement under Indian laws on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India:
Whenever there is an issue, allotment, transfer or conversion of shares, an intimation or approval may be required under FEMA as an event based compliance requirement. This can happen in situations where there is an increase in the shareholding of the company or on induction of new shareholders or an investment is made into the company abroad or when there is transfer of shares in which one party is an Indian or when loans (External Commercial Borrowings) are converted into equity capital. Further, whenever arises an event under FEMA, it comes with a obligation to submit periodical returns as well on a monthly basis for loans related dealing, quarterly basis for FCCB/ADR/GDR related overseas issues and on a annual basis for equity related dealings. Further, there are ceiling limits of 7 days/15 days/30 days/60 days/180 days for various compliances mentioned above. Even further, there is a requirement of certification of procedural compliance of the transaction by a Company Secretary and a certification on valuation of shares through Discounted Cash Flow method by a Chartered Accountant. Any delayed filing beyond the prescribed period also amounts to violation of law which can invite actions from RBI. Hence, in such cases, there is a option of voluntary compounding of offences by disclosing the offence to RBI.
Myth buster on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India:
FEMA compliances are not a mere one-time requirement of reporting whenever there is a requirement of funding or investment or raising money in India or abroad but it goes beyond as a regular procedural requirement once, one of such transaction with a foreign country or foreigner is made. The entire business transaction shall be consulted with an expert as to its impact on automatic route or approval route and how it shall be proceeded with. It may happen, the transaction is under automatic route but as it is taken up by a large enterprise, it may fall under approval route that shall be duly considered. Whenever a foreign exchange transaction happens, it should be considered on a wholesome basis as to its requirements on foreign exchange laws, the accounting treatment of the transactions and the legality of it under the requirement of various corporate laws, industrial laws and sector-specific laws.
Caution point on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India!!!
As the requirements of FEMA are constantly changing as updated by RBI, one shall take caution to ensure whether the reporting requirement on a particular date is in the latest prescribed legal requirement in India. The transacting Indian company shall be in regular touch with their Authorised Dealer (the bank in India) who is responsible for conversion of foreign exchange till the time the bank gets a final confirmation from RBI as to the satisfaction of the legal compliance requirement. The Joint ventures or foreign collaborations shall give due consideration of this legal requirement as this involves a hefty penalty of 3 times of the amount involved or to take the route of compounding to safeguard from violations.
WATCH LAWLABZ VIDEO on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India!!! (Click Here):
At Lawlabz, we offer 360O Personalized VIRTUAL Corporate Solutions by offering COMPLETE online legal support for your organization since its set-up as your entrepreneurial venture, during its management as a corporate entity or a manufacturing industry and closure of unwanted company’s which are not having any significant business of its own.
Legally Yours,
Happy Consulting with www.lawlabz.com
For Private Circulation Only. The copyright of this notification is retained by Lawlabz. Notwithstanding anything contained herein, this notification does not amount to opinion or consultation of any nature. One Pager
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