RBI/2013-2014/428
A.P. (DIR Series) Circular No.84
January 6 , 2014
To
All Category - I Authorised Dealer banks
Madam/Sir,
Issue of Non convertible/ redeemable bonus preference shares or debentures -
Clarifications
Attention of Authorised Dealers Category- I (AD Category-I) banks is invited to
Regulation (2ii) and Regulation 5 of 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 which equity shares, compulsorily and mandatorily
convertible preference shares and compulsorily and mandatorily convertible
debentures are treated as a part of share capital for the purpose of Foreign
Direct Investment.
- Reserve Bank of India has been receiving references from some Indian
companies regarding issue of non-convertible/ redeemable bonus preference shares
or debentures to non-resident shareholders from the general reserve under a
Scheme of Arrangement by a Court, under the provisions of the Companies Act, as
applicable. So far, Reserve Bank has been granting permission for such issuances
on a case-to-case basis. On a review and with a view to rationalizing and
simplifying the procedures, it has been decided that an Indian company may issue
non-convertible/redeemable preference shares or debentures to non-resident
shareholders, including the depositories that act as trustees for the ADR/GDR
holders, by way of distribution as bonus from its general reserves under a
Scheme of Arrangement approved by a Court in India under the provisions of the
Companies Act, as applicable, subject to no-objection from the Income Tax
Authorities.
- The above general permission to Indian companies is only for issue of
non-convertible/ redeemable preference shares or debentures to non-resident
shareholders by way of distribution as bonus from the general reserves. The
issue of preference shares(excluding non-convertible/redeemable preference
shares) and convertible debentures (excluding optionally convertible/partially
convertible debentures) under the FDI scheme would continue to be subject to
A.P. (DIR Series) Circular Nos.73 and
74 dated June 8, 2007 as hitherto.
- Reserve Bank of India has since amended the Regulations and notified vide
Notification No.FEMA.291/2013-RB dated October 4, 2013 notified vide G.S.R.
No.818 (E) dated December 31, 2013.
- AD Category - I banks may bring the contents of the circular to the notice of
their constituents 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
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(Rudra Narayan Kar)
Chief General Manager-in-Charge