RBI/2009-10/445
A. P. (DIR Series) Circular No.49
May 04, 2010
To
All Category-I Authorised Dealer Banks
Madam / Sir,
Foreign Direct Investment (FDI) in India -
Transfer of Shares / Preference Shares / Convertible Debentures
by way of Sale - Revised pricing guidelines
Attention of the Authorised Dealer Category – I (AD Category - I) banks is
invited to the Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) Regulations, 2000, notified vide Notification No.
FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.
- In terms of Schedule 1 of the Notification, an Indian company may issue
equity shares, compulsorily convertible preference shares and compulsorily
convertible debentures (equity instruments) to a person resident outside India
under the FDI policy, subject to inter alia, compliance with the pricing
guidelines. Further, in terms of the A. P. (DIR Series) Circular No.16 dated
October 4, 2004 and A. P. (DIR Series) Circular No. 63 dated April 22, 2009,
general permission is available for transfer of equity instruments, by way of
sale, from residents to non-residents (including transfer of subscriber's
shares) of an Indian company in sectors other than financial services sector
(i.e. Banks, NBFCs, Insurance, Asset Reconstruction Companies, Infrastructure
companies in securities market namely, Stock Exchanges, Depositories and
Clearing Corporations, Credit Information Companies and Commodity Exchanges)
from residents to non-residents and vice versa.
- The extant guidelines have been reviewed in consultation with the Government
of India and accordingly the pricing guidelines in respect of issue of shares
including preferential allotment have been revised. A copy of the Notification
No. FEMA 205/2010-RB dated April 7, 2010, notified vide G.S.R. No.341 (E) dated
April 21, 2010, amending the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2000 (Notification No.
FEMA 20/2000-RB dated May 3, 2000) issued in this regard is enclosed (Annex-II).
- Further, the pricing guidelines for transfer of equity instruments from a
resident to a non-resident and vice versa issued vide A. P. (DIR Series)
Circular No.16 dated October 4, 2004 have also been reviewed and the paragraph
Nos. 2.2 and 2.3 of the Annex to the circular have been accordingly amended. The
revised instructions applicable to transfer of shares of an Indian company in
all sectors are given in the Annex-I. All the other instructions of A. P. (DIR
Series) Circular No.16 dated October 4, 2004 shall remain unchanged.
- These directions will become operative with immediate effect.
- AD Category – I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is
without prejudice to permissions / approvals, if any, required under any other
law.
Yours faithfully,
(Salim Gangadharan)
Chief General Manager-in-Charge
Annex-I
[Annex to A. P. (DIR Series) Circular No. 49
dated May 04, 2010]
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Paragraph No. [cf. A.P.(DIR
Series) Circular No. 16 dated October 4, 2004]
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Existing Provisions
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Revised Provisions
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2.2
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Transfer by Resident
to Non-resident (i.e. to incorporated
non-resident entity other than erstwhile OCB,
foreign national, NRI, FII)
Transfer of shares by
way of sale, by resident to non-resident shall
be at a price not less than
a) the ruling market price,
in case the shares are listed on stock exchange,
b) fair valuation of shares
done by a a Chartered Accountant as
per the guidelines issued by the erstwhile
Controller of Capital Issues, in case of
unlisted shares.
The price per share arrived
at should be certified by a Chartered
Accountant.
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Transfer by Resident
to Non-resident (i.e. to foreign
national, NRI, FII and incorporated non-resident
entity other than erstwhile OCB)
(a) where shares of an Indian
company are listed on a recognized stock
exchange in India, the price of shares
transferred by way of sale shall not be less
than the price at which a preferential allotment
of shares can be made under the SEBI Guidelines,
as applicable, provided that the same is
determined for such duration as specified
therein, preceding the relevant date, which
shall be the date of purchase or sale of shares.
(b) where the shares of an
Indian company are not listed on a recognized
stock exchange in India, the transfer of shares
shall be at a price not less than the fair value
to be determined by a SEBI registered Category –
I - Merchant Banker or a Chartered Accountant as
per the discounted free cash flow method.
The price per share arrived
at should be certified by a SEBI registered
Category-I-Merchant Banker / Chartered
Accountant.
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2.3
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Transfer by Non-resident
(i.e. by incorporated non-resident entity,
erstwhile OCB, foreign national, NRI, FII)
to Resident.
Sale of shares by a non-resident to resident
shall be in accordance with Regulation 10 B(2)
of Notification No. FEMA 20/2000-RB dated May
03,2000 which is as below:
a) Where the shares of an Indian company
are traded on stock exchange
i) The sale is at the prevailing market price on
stock exchange and is effected through a
merchant banker registered with the SEBI or
through a stock broker registered with the stock
exchange.
ii) if the transfer is other than that
referred to in clause (i), the price shall be
arrived at by taking the average quotations
(average of daily high and low) for one week
preceding the date of application with 5 per
cent variation.
Where, however, the shares are being sold by the
foreign collaborator or the foreign promoter of
the Indian company to the existing promoters in
India with the objective of passing management
control in favour of the resident promoters the
proposal for sale will be considered at a price
which may be higher by up to a ceiling of 25 per
cent over the price arrived at as above.
(b) Where the shares of an Indian
company are not listed on stock exchange or are
thinly traded,
i) if the consideration payable for the transfer
does not exceed Rs. 20 lakh per seller per
company, at a price mutually agreed to between
the seller and the buyer, based on any valuation
methodology currently in vogue, on submission of
a certificate from the statutory auditors of the
Indian company whose shares are proposed to be
transferred, regarding the valuation of the
shares, and
ii) if the amount of consideration payable for
the transfer exceeds Rs.20 lakh per seller per
company, at a price arrived at, at the seller's
option, in any of the following manner, namely:
A) a price based on earning per share (EPS)
linked to the Price Earning (P/E) multiple, or a
price based on the Net Asset Value (NAV) linked
to book value multiple, whichever is higher,
or
B) the prevailing market price in small lots as
may be laid down by the Reserve Bank so that the
entire shareholding is sold in not less than
five trading days through screen based trading
system
or
C) where the shares are not listed on any stock
exchange, at a price which is lower of the two
independent valuations of share, one by
statutory auditors of the company and the other
by a Chartered Accountant or by a Merchant
Banker in Category 1 registered with Securities
and Exchange Board of India.
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Transfer by Non-resident
(i.e. by incorporated non-resident entity,
erstwhile OCB, foreign national, NRI and FII)
to Resident
Price of shares transferred by way of sale,
by non-resident to resident shall not be more
than the minimum price at which the transfer of
shares can be made from a resident to a
non-resident as given in para 2.2 above.
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