Liberalisation of transfer of shares between resident and non-resident

Reserve Bank said that transfer of shares between Indians and non-residentswill not require its permission in several key areas like financial services.  Amending theForeign Exchange Management Regulations, the RBI said that its prior permission would not be necessary where the company whose shares are being transferred is engaged in any financial service. Besides, the RBI permission has also been done away with for transfer of shares between residents and non-residents in cases where the Foreign Investment Approval Board ( FIPB) has already given its clearances and the SEBI guidelines have been adhered to. These steps have been taken “as a measure to further liberalise and rationalise the procedures and policies governing foreign directinvestment in India,” . However, it was made clear that the transactions will have to comply with the SEBI regulations, FDI sectoral caps, and the pricing guidelines asspecified by RBI.

Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that

i. The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

B. Transfer of shares from Resident to Non Resident :

i) where the transfer of shares requires the prior approval of the FIPB

as per the extant FDI policy provided that :

a) the requisite approval of the FIPB has been obtained; and

b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

ii) where SEBI (SAST) guidelines are attracted

subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

iii) where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that

a) The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.; 3

b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and

c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

iv) where the investee company is in the financial sector provided that :

a) NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

b). The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.

RBI Circular reference -- A.P. (DIR Series) Circular No. 43 November 04, 2011

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