Transfer of Shares from Non-residents to Residents by CS MOHIT SALUJA
Transfer of Shares from Non-residents to Residents
1. Under Indian foreign exchange regulations, general permission is available for
transfer of shares / convertible debentures between non-residents (“NR”) and
Indian residents (“IR”) by way of gift or sale under private arrangement. Further, a
non resident (other than non-resident Indian (“NRI”) and overseas corporate bodies
(“OCB”) may also transfer, by way of sale or gift, its shares or convertible
debentures to any person resident outside India (including NRIs but excluding
OCBs). However, transfer of shares from NRI to NR will require Reserve Bank of
India (“RBI”) prior approval.
2. Transfer of shares from NR to IR or vice versa is subject to the following:
a. activities of the investee company are under automatic route;
b. sectoral limits under foreign direct investment policy are not breached;
c. sale consideration is in compliance with the pricing guidelines; and
d. such transfer is not subject to Indian Takeover Code;
If a transfer does not meet any of the above requirements, a prior RBI approval
will be necessary.
3. There are certain reporting / procedural requirements under Indian Foreign
Exchange Regulations and the Indian Companies Act relating to transfer of shares,
as briefly discussed below.
Requirement under (Indian) Foreign Exchange Regulations
(a) An NR can transfer, by way of sale, shares of an Indian company under private
arrangement to an IR, subject to the following:
(i) Sale consideration must be determined as per the following pricing guidelines:
a. In case of a listed company: Sale consideration must not be more than the
minimum price at which preferential allotment of shares are made under Securities
Exchange Board of India (“SEBI”) Guidelines.
b. In case of an unlisted company: Sale consideration must not be more than the
fair value of shares determined as per any internationally accepted pricing
methodology on arm’s length basis and duly certified by a Chartered Accountant
or a SEBI registered Merchant Banker.
(ii) Sale consideration (net of taxes) must be remitted outside India through an
authorised dealer (“AD”) bank.
(iii) Transfer of shares must be reported in Form FC-TRS to RBI through an AD
bank within 60 days of receipt / remittance of sale consideration. The onus of
submission of the said Form FC-TRS is on the transferor / transferee resident in
India.
(b) Usually, the following documents are required to be submitted to the AD bank
along with the Form FC-TRS:
(i) Consent letters signed by the transferor and the transferee, or their duly
appointed agent, indicating the details of transfer, i.e. number of shares to be
transferred, the name of the investee company whose shares are being transferred
and the price at which shares are being transferred.
In case there is no formal sale agreement, letters exchanged to this effect may be
kept on record.
(ii) Where the consent letter is signed by an agent, the power of attorney
authorizing the agent to purchase/sell shares by the transferor / transferee.
(iii) The shareholding pattern of the investee company before and after transfer of
shares showing equity participation of residents and non-residents category-wise.
(iv) If the transferor is an NRI/OCB, the copies of RBI approvals evidencing the
shares held by them on repatriation/non-repatriation basis. The sale proceeds shall
be credited to non-resident (external) rupee account / non-resident ordinary rupee
account, as applicable.
(v) Certificate from a chartered accountant indicating fair value of shares.
(vi) Undertaking from the transferee to the effect that the pricing guidelines have
been adhered to.
(vii) No objection/ tax clearance certificate from the Income Tax Authority/
Chartered Account.
(c) Settlement of transactions will be subject to payment of applicable taxes, if any.
REQUIREMENT UNDER THE (INDIAN) COMPANIES ACT, 2013
(a) In order to transfer shares, an instrument of transfer called securities transfer
form (“STF”) i.e. SH-4 will need to be executed by transferor and transferee. The
duly executed and witnessed SH-4 must be delivered to the company within two
months of its execution. A stamp duty on the value of the shares (i.e. consideration
or the fair value, whichever is higher) will need to be paid in Indian rupees.
(b) Once the STF is lodged with the company, the latter will hold a Board meeting
and transact the following business:
(i) approve and record the transfer of the shares; and
(ii) endorse the transfer on share certificate in favour of the transferee.
(c) The transferee / his agent must submit to the company a certificate in the Form
FC-TRS endorsed by the AD bank that the payment has been made by the
transferee. On receipt of the said certificate, the company may record the transfer
in its books.
The information provided herein is of general nature and not intended to address
the circumstances of any particular individual or entity. Although we endeavour to
provide accurate and updated insight, we do not guarantee that such information is
accurate as on date.
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