Purchase of Shares and Securities by Non-Residents

No person resident outside India, whether an individual or a firm/company (other than a banking company) incorporated outside India, can acquire shares of any company carrying on trading, commercial or industrial activity in India without permission of Reserve Bank. Permission of Reserve Bank is also required for transfer or issue of any security (which includes shares, debentures, bonds, etc.) to a person resident outside India. While granting permission for transfer or issue of shares to a non-resident investor, permission for purchase of shares by him is granted simultaneously and hence it is not generally necessary for non-resident investors to apply separately for permission to purchase shares in Indian companies in such cases

Issue and transfer of Indian rupee shares and securities to any person resident in Nepal requires permission of Reserve Bank.

Creation or transfer of any interest in a security in favour of a non-resident is not permitted unless allowed by the RBI. This prohibition also precludes pledging of any security to or in favour of a non-resident (e.g. as collateral or prime security for credit facilities abroad) or utilizing them for forming a trust or settlement of which a non-resident is the beneficiary.

Transfer of Shares/Securities from Non-residents to Non-residents

No such confirmation of Reserve Bank is required to be obtained for transfer of shares (as also bonds or debentures) between two non-residents. The non-resident transferee, however, requires permission for purchase of the shares or the Indian company for registering the transfer in favour of another non-resident. Such transfers will, therefore, not be registered by the Indian company unless the non-resident purchaser has obtained the necessary permission.

Transfer of Shares/Bonds/Debentures from Non-residents to Residents

No transfer of shares/bonds/debentures of a company registered in India made by a person resident outside India to another person resident in India will be valid unless the transfer is confirmed by Reserve Bank on an application made to it by the transferor or the transferee. Reserve Bank has, however, exempted transfer of shares, bonds or debentures of Indian companies held by persons of Indian nationality/origin (NRIs) on both repatriation and non-repatriation basis to residents as also transfer of shares, bonds or debentures by way of gift through issue of Notifications, subject to fulfillment of certain conditions.

Responsibility of Companies Registering Transfer of Shares/Securities in favour of NRIs

No person can enter transfer of securities in any register or book in which securities are registered or inscribed, if he has any ground to suspect that the transfer involves a contravention of the foreign exchange laws. The registration of the foreign address of the holder of a security cannot be done except by way of substitution for any such address in the same country or for which permission has been granted by Reserve Bank. Before registering any transfer of shares/securities in the names of non-residents, companies concerned must obtain permission of Reserve Bank except where such permission has already been obtained by transferor/transferee.

Authorized dealers and financial institutions extending custodial services may hold in their safe custody, shares and securities issued / transferred to non-residents and also release the shares/securities from non-resident safe custody account for purposes like recording change of name, sale, etc., provided the relative purchase/sale/transfer is covered by the general or special permission of Reserve Bank.

General rule for Remittance of Dividend/Interest/Sale proceeds of Securities

As a general rule, the dividend, interest and other income on shares/securities and sale proceeds of shares and securities originally purchased out of funds held in the investor's Ordinary Non-resident Rupee (NRO) accounts as also those acquired subject to the condition that they will not carry the right of repatriation are required to be credited to the investor's NRO account. In other cases, authorized dealers may remit the net amount of dividend, interest, sale proceeds etc. after deducting Indian taxes at applicable rates or credit them to the investor's NRE/FCNR accounts to the extent permitted by Reserve Bank

Export of any security (which includes shares, bonds, debentures, etc.) to any place outside India requires permission of Reserve Bank. Unit Trust of India has been granted general permission by Reserve Bank to export certificates covering units purchased by non-resident investors from out of foreign exchange remittances to India or from their non-resident accounts in India. At the time of granting permission for purchase/issue of shares/bonds/debentures by/to non-residents, permission for export of the share/bond/debenture certificates is generally granted by Reserve Bank. Permission for export of shares/securities will, therefore, be required to be obtained only in cases where such permission has not been given.

Reporting of investment inflows

Reserve Bank has granted general permission to Indian companies for issue and exports of shares/securities to non-resident investors, and to non-resident investor to acquire shares/securities of Indian companies under various non-resident direct investment schemes. In terms of Reserve Bank Notification Nos.FERA 188 and 189/RB-98 dated 11th November 1998, it is obligatory on the part of Indian companies seeking non-resident investment to file a report containing the following particulars with the Regional Office of Reserve Bank not later than 30 days from the date of receipt of remittance in Form ISD :-

(a) Name of the foreign investor:

(b) Country of residents or incorporation of the foreign investor

(c) Date of receipt of remittance and its rupee equivalent

(d) Name and address of the authorized dealer in India through whom the remittance is received;

(e) Number and date of SIA/FIPB approval in respect of which remittance is received. This requirement is in addition to the submission of the prescribed declaration in form FC(RBI)/ISD(R)/ISD, as the case may be, along with the documents, within 30 days form the date of issue of shares.