Transfer of equity shares from non-resident to non-resident

Dear Madam/Sir,

Regarding: FEMA ACT 1999, Foreign Direct Investment, Transfer of equity shares of an Indian Private Limited Company, from non-resident to non-resident.

Referring to the RBI FAQ on the RBI website: https://rbi.org.in/Scripts/FAQView.aspx?Id=26:

Foreign Investments in India

(Updated up to January 28, 2014)

Q.7. What are the guidelines for transfer of existing shares from non-residents to residents or residents to non-residents?

Ans. The term ‘transfer’ is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien” {Section 2 (ze) of FEMA, 1999}.

The following share transfers are allowed without the prior approval of the Reserve Bank of India

A. Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that :-PRO pdfcrowd.com

i. The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

B. Transfer of shares from Resident to Non Resident:

etc…………………………………..

And  in the original  RBI/2013-14/15 document:

Master Circular No.15 /2013-14 (Updated as on July 04, 2013) page 7 and 8)

Acquisition / transfer of existing shares (private arrangement). The acquisition of existing shares from Resident to Non-resident , etc…..

(b) negotiated price for shares of companies which are not listed on a recognized stock exchange in India which shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow(DCF) method.

Further, transfer of existing shares by Non-resident (i.e. by incorporated non-resident entity, erstwhile OCB, foreign national, NRI, FII) to Resident shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident as given above.

My question:

As there is only mention of transfer of existing shares from non-resident to resident and viceversa may I conclude that therefor transfer of existing shares from non-resident to non-resident the pricing of the transaction is NOT compliant

“with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as

IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated”

Is my conclusion correct? And therefore can the pricing of the transfer of existing shares from non-resident to non-resident freely without any upper limit be settled in private arrangement between the parties and the transfer be allowed without the prior approval of the Reserve Bank of India ?

Many thanks for the help,

Best regards,

Mr Verbeke