Tag Archives: Foreign Exchange Management (Non-debt Instruments) Rules 2019

Transfer of shares or other securities under the Companies Law is a pretty simple affair.

In the case of listed securities, you can click the sell button on the online platform of your service provider without interacting with the buyer. When the sell and purchase orders are linked, the system will affect the transfer without your further action. Even concerned companies are not required to take any further action to accept time to time supervision and audit. In the case of other dematerialised securities, the security transfer transaction went smoothly, except the seller took steps to find a buyer, and the company will confirm the sale. For dematerialised transactions, there are strict KYC Norms for Depositories Participants.

In the case of the unlisted securities, securities transfer occurs with specific paperwork. Where a non-resident or foreign person is involved,  the paperwork increases manifold. There is a reporting procedure with the Reserve Bank of India in such cases. In certain cases, the transferee requires prior approval from the Government of India.

According to Rule 9 of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, a person resident outside India not being a non-resident Indian, or an overseas citizen of India or erstwhile overseas corporate body may transfer by way of sale or gift the equity instruments of an Indian company or units held by him to in any person resident outside India. However, for companies in specific sectors, prior government approval is required.

According to Rule 6, an entity of a country which shares a land border with India or a beneficial owner of an investment into India who is situated in or is a citizen of any such country shall invest only with the Government Approval. A person who is a citizen of Pakistan or is an entity incorporated in Pakistan shall invest only with prior government approval. In a few sectors, there is an explicit prohibition.

India shares land borders with Bangladesh, Bhutan, China, Myanmar, Nepal, and Pakistan. However, this rule does not apply to Indonesia, Thailand, Maldives, and Sri Lanka, as these are Maritime Neighbours and do not share a land border with India.

To give effect these rules, the Ministry of Corporate Affairs amended the Form SH-4 of the Companies (Share Capital and Debentures) Rules, 2014, to enable the companies to have prior information.

The Companies (Share Capital and Debentures) Amendment Rules, 2022, with effect from 4 May 2022, inserted the following declaration in the Form:

“Declaration:

• The transferee is not required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to the transfer of shares; or
• The transferee is required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to the transfer of shares, and the same has been obtained and is enclosed herewith.”.

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