INDIAN DEPOSITORY RECEIPTS


We have discussed earlier here that according to Section 390 of the Companies Act 2013, the Central government make rules for –

  • the offer of Indian Depository Receipt;
  • the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipt;
  • the manner in which Indian Depository Receipt shall be dealt with in a depository mode and by custodian and underwriters; and
  • the manner of sale, transfer or transmission of Indian Depository Receipt,

by a foreign company.

These Rules are contained in Rule 13 of the Companies (Registration of foreign Companies) Rules, 2014.

Indian Depository Receipt” (‘IDR’) means any instrument in the form of a depository receipt created by a Domestic Depository in India and authorized by a company incorporated outside India making an issue of such depository receipts. [Explanation to Rule 13(1) of the Companies (Registration of foreign Companies) Rules, 2014]

Issuing Company

No company incorporated or to be incorporated outside India, whether the company has or has not established, or may or may not establish, any place of business in India (hereinafter in this rule called ‘issuing company’) shall make an issue of Indian Depository Receipts (IDRs) unless such company complies with the conditions mentioned under this rule, in addition to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and any directions issued by the Reserve Bank of India. [Rule 13(1) of the Companies (Registration of foreign Companies) Rules, 2014]

For issue of IDR, an issuing company shall comply—

  • Rule 13 of the Companies (Registration of foreign Companies) Rule 2014,
  • the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009,
  • Directions issued by Reserve Bank of India, which includes FEMA compliances.

Eligibility for Issuing Company:

The issuing company shall not issue IDRs unless-

  • its pre-issue paid-up capital and free reserves are at least US$ 50 million and it has a minimum average market capitalization (during the last three years) in its parent country of at least US$ 100 million;
  • it has been continuously trading on a stock exchange in its parent or home country (the country of incorporation of such company) for at least three immediately preceding years;
  • it has a track record of distributable profits in terms of section 123 of the Act, for at least three out of immediately preceding five years;
  • It fulfils such other eligibility criteria as may be laid down by the Securities and Exchange Board of India from time to time in this behalf. [Rule 13(2) of the Companies (Registration of foreign Companies) Rules, 2014]

Procedure for Issue of IDRs:

The issuing company shall follow the following procedure for making an issue of IDRs:

  • the issuing company shall, where required, obtain the necessary approvals or exemptions from the appropriate authorities from the country of its incorporation under the relevant laws relating to issue of capital and IDRs.
  • issuing company shall obtain prior written approval from the Securities and Exchange Board of India on an application made in this behalf for issue of IDRs along with the issue size.
  • an application under clause (b) shall be made to the Securities and Exchange Board of India (along with draft prospectus) at least ninety days prior to the opening date of the IDRs issue, in such form , along with such fee and furnishing such information as may be specified by the Securities and Exchange Board of India from time to time. The issuing company shall also file with the Securities and Exchange Board of India, through a Merchant Banker, a due diligence report along with the application under clause (b) in the form specified by the Securities and Exchange Board of India.
  • the Securities and Exchange Board of India may, within a period of thirty days of receipt of an application under clause (c), call for such further information, and explanations, as it may deem necessary, for disposal of such application and shall dispose the application within a period of thirty days of receipt of further information or explanation. If within a period of sixty days from the date of submission of application or draft prospectus, the Securities and Exchange Board of India specifies any changes to be made in the draft prospectus, the prospectus shall not be filed with the Securities and Exchange Board of India or Registrar of Companies unless such changes have been incorporated therein.
  • the issuing company shall on approval being granted by the Securities and Exchange Board of India to an application under clause (b), pay to the Securities and Exchange Board of India an issue fee as may be prescribed from time to time by the Securities and Exchange Board of India.
  • the issuing company shall file a prospectus, certified by two authorized signatories of the issuing company, one of whom shall be a whole-time director and other the Chief Financial Officer, stating the particulars of the resolution of the Board by which it was approved with the Securities and Exchange Board of India and Registrar of Companies, New Delhi before such issue. At the time of filing of said prospectus with the Registrar of Companies, New Delhi, a copy of approval granted by the Securities and Exchange Board of India and the statement of fees paid by the Issuing Company to the Securities and Exchange Board of India shall also be attached.
  • the prospectus to be filed with the Securities and Exchange Board of India and the Registrar of Companies, New Delhi shall contain the particulars as prescribed in sub-rule (8) and shall be signed by all the whole-time directors of the issuing company, and the Chief Financial Officer.
  • the issuing company shall appoint an overseas custodian bank, a Domestic Depository and a Merchant Banker for the purpose of issue of IDRs.
  • the issuing company may appoint underwriters registered with the Securities and Exchange Board of India to underwrite the issue of IDRs.
  • the issuing company shall deliver the underlying equity shares or cause them to be delivered to an Overseas Custodian Bank and the said bank shall authorize the domestic depository to issue IDRs.
  • the issuing company shall obtain in-principle listing permission from one or more stock exchanges having nationwide trading terminals in India. [Rule 13(3) of the Companies (Registration of foreign Companies) Rules, 2014]

Explanation- For the purposes of this rule,-

(i) “Domestic Depository” means custodian of securities registered with the Securities and Exchange Board of India and authorized by the issuing company to issue IDRs. [Explanation (i) of Rule 13(1) of the Companies (Registration of foreign Companies) Rules, 2014]

(ii) “Merchant Banker” means a Merchant Banker as defined in sub-regulation (cb) of regulation 2 of the Securities and Exchange Board (Merchant Bankers) Regulations, 1992. [Explanation (ii) to Rule 13(1) of the Companies (Registration of foreign Companies) Rules, 2014]

(iii) “Overseas Custodian Bank” means a banking company which is established in a country outside India and which acts as custodian for the equity shares of Issuing Company, against which IDRs are proposed to be issued by having a custodial arrangement or agreement with the Domestic Depository or by establishing a place of business in India. [Explanation (iii) to Rule 13(1) of the Companies (Registration of foreign Companies) Rules, 2014]

Documentary Requirement:

The Merchant Banker to the issue of IDRs shall deliver for registration the following documents or information to the Securities and Exchange Board of India and Registrar of Companies at New Delhi, namely:-

  • instrument constituting or defining the constitution of the issuing company;
  • the enactments or provisions having the force of law by or under which the incorporation of the Issuing company was effected, a copy of such provisions attested by an officer of the company be annexed;
  • if the issuing company has established place of business in India, address of its principal office in India;
  • if the issuing company does not establish a principal place of business in India, an address in India where the said instrument, enactments or provision or copies thereof are available for public inspection, and if these are not in English, a translation thereof certified by a key managerial personnel of the Issuing company shall be kept for public inspection;
  • a certified copy of the certificate of incorporation of the issuing company in the country in which it is incorporated;
  • the copies of the agreements entered into between the issuing company, the overseas custodian bank, the Domestic Depository, which shall inter alia specify the rights to be passed on to the IDR holders;
  • if any document or any portion thereof required to be filed with the Securities and Exchange Board of India or the Registrar of Companies is not in English language, a translation of that document or portion thereof in English, certified by a key managerial personnel of the company to be correct and attested by an authorized officer of the Embassy or Consulate of that country in India, shall be attached to each copy of the document. [Rule 13(4) of the Companies (Registration of foreign Companies) Rules, 2014]

 

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