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Allotment of shares to NRI

Preeti Gandhi (Company Secretary) (90 Points)

09 November 2011

An unlisted public company has alloted equity shares on preferential basis to a

NRI. The funds are received from his NRO Account. Will this be considered as

FDI? Do we need to file the Advance Report & FCGPR with the RBI?

Please reply?

Thanks

Preeti

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5 Replies

valji (Accounts manager-MBA) (2150 Points)
Replied 09 November 2011

it is not required to take the permission of RBI or submit fc gpr ,but you have to inform RBI by simple letter share are alloted on non repitable basis

DS Mahajani (1) (242 Points)
Replied 10 November 2011

Yes, allotment of equity shares on preferential basis to an NRI would be treated as FDI in India. On receipt of funds are received from his NRO Account, the reporting requirement as mentioned in Para 6.2 of the Consolidated FDI Policy issued on 31.03.2011 for the year 2011-12 is as under-

6.2.1 Reporting of Inflow

An Indian company receiving investment from outside India for issuing shares under the FDI Scheme, should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank not later than 30 days from the date of receipt in the Advance Reporting Form mentioned in Annex-5 of the Consolidated FDI Policy.
Indian companies are required to report the details of the receipt of the amount of consideration for issue of shares through an AD Category – I bank, together with a copies of the FIRC/s evidencing the receipt of the remittance along with the KYC report (enclosed as Annex-6 of the Consolidated FDI Policy) on the non-resident investor from the overseas bank remitting the amount. The report would be acknowledged by the Regional Office concerned, which will allot a Unique Identification Number (UIN) for the amount reported.

6.2.2 Reporting of issue of shares

After issue of shares fully, the Indian company has to file Form FC-GPR, enclosed in Annex-1-A, not later than 30 days from the date of issue of shares.
Form FC-GPR has to be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorized Dealer of the company, who will forward it to the Reserve Bank. The following documents have to be submitted along with the form:
A certificate from the Company Secretary of the company certifying that:
- all the requirements of the Companies Act, 1956 have been complied with;
- terms and conditions of the Government’s approval, if any, have been complied with;
- the company is eligible to issue shares under these Regulations; and
- the company has all original certificates issued by authorized dealers in India evidencing receipt of amount of consideration.

Note: For companies with paid up capital with less than Rs.5 crore, the above mentioned certificate can be given by a practicing company secretary.

A certificate from Statutory Auditor or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
The report of receipt of consideration as well as Form FC-GPR have to be submitted by the AD Category-I bank to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated.
Annual return on Foreign Liabilities and Assets (Annex 1-B) should be filed on an annual basis by the Indian company, directly with the Reserve Bank. This is an annual return to be submitted by 31st of July every year, pertaining to all investments by way of direct/portfolio investments/reinvested earnings/other capital in the Indian company made during the previous years (i.e. the information submitted by 31st July will pertain to all the investments made in the previous years up to March 31). The details of the investments to be reported would include all foreign investments made into the company which is outstanding as on the balance sheet date. The details of overseas investments in the company both under direct / portfolio investment may be separately indicated.
Issue of bonus/rights shares or stock options to persons resident outside India directly or on amalgamation / merger/demerger with an existing Indian company, as well as issue of shares on conversion of ECB / royalty / lumpsum technical know-how fee / import of capital goods by units in SEZs, has to be reported in Form FC-GPR.

Regards

1 Like

Vishal (business) (78 Points)
Replied 10 November 2011

Pl let me know the pricing guidelines as per RBI for allotment of shares to NRI under automatice route.

Pl confirm if this has to be the Discounted Cash Flow Method only and can shares be issued at a price greater than the Valuation given by the practising chartered accountatnt

thanks and regards

Rahul (CA Practice ) (1818 Points)
Replied 15 January 2012

Thanks for the knowledge addition

Sudhag (Chartered Accountant and Company Secretary. Visit at : www.taxpertpro.com) (1231 Points)
Replied 22 November 2013

For an NRI, the investment can be made out of NRE/FCNR(B)/NRO account. Where he makes investment through NRE/FCNR(B) account the money is repatriable however, the money is debited from NRO account, it shall be on NON repatriable basis.

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