This document summarizes the rules for acquisition and transfer of securities by non-residents in India. It outlines various scenarios for the transfer of capital instruments of an Indian company between residents and non-residents, including transfers by NRIs, OCIs, overseas corporate bodies, and residents. It specifies the applicable entry routes, sectoral caps, pricing guidelines, and documentation requirements for such transfers. The document also provides definitions for key terms like non-resident Indian, overseas citizen of India, and capital instruments.

1. Acquisition and Transfer of Securities by Non-residents
CA. Divakar Vijayasarathy

2. Credits and Acknowledgments
V Thirumal
CA Jugal Gala

3. Legends used in the Presentation
AD Bank Authorised Dealer Bank
CA Chartered Accountant
CMA Cost and Management Accountant
ECB External Commercial Bank
FCNR(B) Foreign Currency Non Resident Account (Banks)
FEMA Foreign Exchange Management Act, 1999
FPI Foreign Portfolio Investor
NBFC Non-Banking Financial Company
NOC No Objection Certificate
NRE Non-resident Rupee Account
NRI Non-resident Indian
NRO Non-resident Ordinary Rupee Account
OCB Overseas Corporate Body
OCI Overseas Citizen of India
SEBI Securities Exchange Board of India
USD United Stated Dollars

4. Presentation Schema
Transfer of capital
instruments of an
Indian company
Transfer by way of sale
or gift to any Non-
resident
Transfer by an overseas
corporate body (OCB)
Transfer by an NRI /
OCI by way of gift or
sale to any Non-
resident
Transfer by a NRI/ OCI
on a non-repatriable
basis or a Resident by
way of sale to any Non-
resident
Transfer by an NRI/ OCI
by way of gift to
another NRI/ OCI on a
non-repatriable basis
Sale by a Non-resident
on a recognised stock
exchange in India
Transfer by way of gift
holding securities on a
non-repatriable basis
or a resident to a Non-
resident
Transfer by a Non-
resident of capital
instruments containing
an optionality clause
Deferred Payment
Consideration
Opening of Escrow
Account
Transfer by way of
Pledge
Transfer from a
Resident to Non-
resident where the
Investee Company is in
the Financial Sector
Mode of payment Pricing Guidelines

5. Transfer of capital instruments of an Indian
company by or to a Non-resident
A Non-resident who has invested in capital instruments of an Indian company or units in accordance with FEMA Regulations
can transfer the capital instruments or units so held subject to the specified terms and conditions in the following scenarios:
Transfer from a Non-
resident by way of sale
or gift to any Non-
resident
Transfer by an overseas
corporate body (OCB)
Transfer by an NRI / OCI
by way of gift or sale to
any Non-resident
Sale by a Non-resident
on a recognised stock
exchange in India
Transfer by an NRI/ OCI
by way of gift to
another NRI/ OCI on a
non-repatriable basis
Transfer by a NRI/ OCI holding
capital instruments on a non-
repatriable basis or a Resident by
way of sale to any Non-resident
Transfer by way of gift by an NRI/
OCI holding securities on a non-
repatriable basis or a Resident to a
Non-resident
Transfer by a Non-
resident of capital
instruments containing
an optionality clause

6. Relevant Definitions
Non-Resident Indian (NRI) is an individual resident outside India who is citizen of India
Overseas Citizen of India (OCI) is an individual resident outside India who is registered as an Overseas Citizen of India
Cardholder under Section 7(A) of the Citizenship Act, 1955
Investment on repatriation
basis
is an investment, the sale/ maturity proceeds of which are, net of taxes, eligible to be
repatriated
'Investment on non-repatriation basis', will be construed accordingly.
Authorized Dealer Bank means a bank including a co-operative bank authorized by the Reserve Bank to transact
and maintain an account of a person resident outside India
Capital Instruments Capital instruments are equity shares, debentures, preference shares and share
warrants issued by an Indian company

7. Capital Instruments
An Indian company is permitted to receive foreign investment by issuing capital instruments to the investor
Equity Shares
Preference Shares
• Fully compulsorily and mandatorily
convertible
• As per Companies Act 2013
Debentures
• In accordance with SEBI regulations
• 25% upfront and balance within 18
months
• Any shortfall would not be treated as
partly paid
• Non-payment - Forfeiture as per
Companies Act, 2013 and Income Tax
Act, 1961
Share warrants
• Should be fully called up within 12 months
• 25% of total consideration to be received upfront
• 12 months criteria not applicable if
o Listed co. – issue size > Rs 500 crore
o Unlisted Co. - issue size > Rs 500 crore provided
monitoring agency appointed - SEBI compliance
• Non-payment - Forfeiture as per Companies Act, 2013
and Income Tax Act, 1961
Partly paid up shares
• In accordance with Companies Act 2013
• Includes partly paid shares
• Fully compulsorily and mandatorily
convertible
• As per Companies Act 2013

8. Transfer from a Non-resident by way of sale or gift
to any Non-resident
A non-resident, not being a NRI or an OCI or an OCB, may transfer to any non-resident
It shall also include transfer pursuant to merger, de-merger and amalgamation of foreign entities
Prior Govt. approval is required to be obtained for any transfer in case the company is engaged in a sector which requires Govt. approval
Where the acquiring non-resident is an FPI and such acquisition results in breach of FPI or sectoral limits, such
shares shall be sold to an eligible resident in 5 trading days; failing which would be considered a contravention
of FEMA
Indian companies which have foreign investment are required to upload their total foreign
investment limits and permissible aggregate/ sectoral limits on portals of the Indian depositories

9. Transfer by an overseas corporate body (OCB)
• Overseas Corporate Body (OCB) means a company, partnership firm, society and other
corporate body owned directly or indirectly to the extent of at least 60% by NRI
• OCBs have been derecognised as a class of investors since 2003
An OCB may transfer capital instruments in accordance with the RBI guidelines on de-recognition of OCBs

10. Transfer by an NRI / OCI by way of gift or sale
to any Non-resident
An NRI or an OCI holding capital instruments of an Indian company or units on
repatriation basis can transfer the same by way of sale or gift to any Non-resident
Prior Government approval is required for any transfer in case the company is engaged in a sector which requires Government approval
Where the capital instruments acquired by an NRI or an OCI has resulted in a breach of the applicable
aggregate NRI/ OCI limit or sectoral limits, the NRI or the OCI is required to sell the capital instruments so
acquired within 5 trading days after settlement to a Resident eligible to hold such instruments
The breach of the said aggregate or sectoral limit, as the case may be, on account of such acquisition
for the period between the acquisition and sale, provided the sale is within the prescribed 5 trading
days after settlement, shall not be reckoned as a contravention under FEMA Regulations

11. Transfer by a NRI/ OCI holding capital instruments
on a non-repatriable basis or a Resident by way of
sale to any Non-resident
• A Resident holding capital instruments of an Indian company or units,
• NRI or an OCI or a company/ trust/ partnership firm incorporated outside
India and owned and controlled by NRIs or OCIs
holding capital instruments of an Indian company or units on a non-repatriation basis
may transfer the same to a Non-resident by way of sale
subject to the adherence to entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant
conditions as applicable for foreign investment and documentation and reporting requirements for such transfers
The above adherences will not apply in case the transferee is an NRI or an OCI or a company/ trust/ partnership firm
incorporated outside India and owned and controlled by NRIs or OCIs acquiring such investment on a non-repatriation basis

12. Transfer by an NRI/ OCI by way of gift to another
NRI/ OCI on a non-repatriable basis
and the transferee shall hold them on a non-repatriable basis.
An NRI or an OCI or a company/ trust/ partnership firm incorporated
outside India and owned and controlled by NRIs or OCIs
holding capital instruments of an Indian company or units on a non-repatriation basis
to an NRI or an OCI or a company/ trust/ partnership firm incorporated
outside India and owned and controlled by NRIs or OCIs
is permitted to transfer the same by way of gift, without any approval

13. Sale by a Non-resident on a recognised stock exchange
in India
in the manner prescribed by SEBI
may sell the same on a recognised stock exchange in India
is permitted to transfer the same to a Resident by way of sale/ gift or
A Non-resident, holding capital instruments of an Indian company or units in accordance with FEMA Regulations
The transfer by way of sale is required to be in compliance with and is subject to the adherence to
pricing guidelines, documentation and reporting requirements prescribed for such transfers
The above adherences shall not apply where the capital instruments are held by the Non-resident on a non-repatriable basis

14. Transfer by way of gift by an NRI/ OCI holding
securities on a non-repatriable basis or a Resident
to a Non-resident
An NRI or an OCI holding securities of an Indian company on a non-repatriation basis or a Resident may transfer the securities so
held by them to a Non-resident by way of gift with the prior approval of the Reserve Bank, and subject to the following conditions:
The Donee is eligible to hold the securities under FEMA Regulations
The gift does not exceed 5 % of the paid up capital of the Indian company/ each series of debentures/
each mutual fund scheme; this limit is a cumulative limit for a donor to one particular donee.
The applicable sectoral cap in the Indian company is not breached;
The donor and the Donee are relatives as defined in Companies Act, 2013;
The value of security to be transferred by the donor together with any security transferred to any person
residing outside India as gift during the FY does not exceed the rupee equivalent of USD 50,000;
The application shall be made through an AD bank to the Regional Office concerned of the Reserve Bank
under whose jurisdiction the Registered office of the company operates.

15. Relative – Sec 2(77) of Companies Act, 2013
Relative
Members of
HUF
Related person
Rule 4
Father Mother Son & Daughter
Son’s wife &
Daughter’s
husband
Brother Sister
Husband &
Wife
Includes Step-Father, Step-Mother, Step-Son, Step-Brother & Step-Sister

16. Transfer by a Non-resident of capital instruments
containing an optionality clause
and a minimum lock-in period of 1 year, or
minimum lock-in period under FEMA Regulations,
whichever is higher
subject to the pricing guidelines prescribed under FEMA Regulations
can exit without any assured return
and exercising the option/ right
containing an optionality clause in accordance with FEMA Regulations
A Non-resident holding capital instruments of an Indian company
Optionality clause will oblige the buy-back from the investor at the price prevailing/value determined at
the time of exercise so as to enable the investor to exit without any assured return.

17. Deferred Payment Consideration
In case of transfer of capital instruments between a Resident and a Non-resident
an amount not exceeding 25 % of the total consideration
can be paid by the buyer on a
deferred basis within a period not
exceeding 18 months from the date
of the transfer agreement, or
can be settled through an escrow
arrangement between the buyer and
the seller for a period not exceeding
18 months from the date of the
transfer agreement, or
can be indemnified by the seller for a
period not exceeding 18 months from the
date of the payment of the full
consideration, if the total consideration has
been paid by the buyer to the seller
The total consideration finally paid for the shares must be compliant with the applicable pricing guidelines

18. Opening of Escrow Account
In case of transfer of capital instruments
between a resident and Non-resident,
the Non-resident is permitted to open an Escrow account
in accordance with the FEMA Deposit Regulations
by way of inward remittance through banking channels
and/ or
by way of guarantee issued by an authorized dealer bank,
Such Escrow account can be funded
subject to terms and conditions as specified in the FEMA Guarantees Regulations
Where the transaction is governed by SEBI guidelines/ regulations, operation of the
Escrow accounts for securities shall be in accordance with the relevant SEBI regulations
An escrow account is an account where funds are held in trust whilst two or more parties complete a transaction

19. Transfer by way of Pledge
may pledge the capital instruments of the borrowing company or that of its associate
resident companies for the purpose of securing the ECB raised by the borrowing company
Any person being a promoter of a company registered in India (borrowing company)
which has raised external commercial borrowing (ECB) in compliance with the FEMA Regulations
subject to the following conditions:
• the period of such pledge shall be co-terminus with the maturity of the underlying ECB
• in case of invocation of pledge, transfer shall be in accordance with FEMA Regulations
• the Statutory Auditor has certified that the borrowing company will utilise/ has utilised
the proceeds of the ECB for the permitted end-use/s only;
• no person shall pledge any such capital instruments unless a no-objection (NOC) has
been obtained from an AD bank that the above conditions have been complied with

20. Contd. Any Non-resident holding capital instruments in an Indian company or units
A Bank in India to secure the
credit facilities being extended
to such Indian company for
bona-fide purposes
An overseas bank to secure the credit
facilities being extended to such person
or a Non-resident who is the promoter
of such Indian company or the overseas
group company of such Indian company
A Non-Banking Financial Company
(NBFC) registered with the Reserve
Bank to secure the credit facilities
being extended to such Indian
company for bona fide purposes
may, subject to additional conditions, pledge the capital instruments or units in favour of:
AD bank should satisfy itself of the compliance of the stipulated conditions
Capital instruments of an Indian company or units transferred by way of pledge should be unencumbered
The company shall obtain no-objection certificate from the existing lenders, if any
In case of invocation of pledge, transfer of capital instruments of an Indian company or units pledged shall be in accordance with
entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions at the time of creation of pledge
Any other transfer by way of pledge, apart
from above, would require the prior approval
of the Reserve Bank
In such scenario, cases may be forwarded to RBI with
the following documents
• Board Resolution passed by the non-resident company/ies and the
investee company approving the pledge
• Loan agreement/ pledge agreement
• Details of the ECB facility availed/ proposed
• Details of reporting of the acquisition of security

21. Transfer from a Resident to Non-resident where the
Investee Company is in the Financial Sector
In case of transfer of capital instruments of
a company in the financial sector
from a resident to Non-resident
'fit and proper / due diligence' requirement as regards the non-resident
investor as stipulated by the respective financial sector regulator
shall have to be complied with by the AD bank

22. Mode of payment
should be received from
abroad or remitted from
India, as the case may be,
NRO account maintained in
accordance with the FEMA
Regulations
The amount of consideration for
transfer of capital instruments between
a resident and a Non-resident
through banking channels in India or
paid out from or received in, as the
case may be, NRE/ FCNR(B)/ Escrow
accounts maintained in accordance
with FEMA Regulations
In case an investment is held
on a non-repatriation basis,
in addition to above, the amount
of consideration for transfer may
be paid out from or received in

23. Pricing Guidelines
Capital instruments transferred by resident to non-resident
• Price as per SEBI guidelines – for Listed Co. or Co. going through delisting
• valuation as per any internationally accepted pricing methodology on an arm’s
length basis duly certified by CA, CMA or Merchant banker - Unlisted Co.
Guiding principle – non-resident is not guaranteed any assured exit price at the time of
making such investment/ agreement and shall exit at the price prevailing at the time of exit
Capital instruments transferred by Non-resident to resident
Should not exceed
Should not be less than
• Price as per SEBI guidelines – for Listed Co. or Co. going through delisting
• valuation as per any internationally accepted pricing methodology on an arm’s
length basis duly certified by CA, CMA or Merchant Banker - Unlisted Co.

24. Contd.
Swap of capital
instruments
• a Merchant Banker registered with SEBI or
• an Investment Banker registered with the appropriate
regulatory authority in the other country
irrespective of the amount,
valuation to be made by
Partly paid shares Pricing to be determined upfront
Share warrants
• Pricing and the price/ conversion formula shall be determined upfront
• Price at conversion should not be lower than the fair value worked out at the time of issue
Non-applicability of Pricing guidelines
• Investment in capital instruments by non-resident on non-repatriation basis or
• Sale in accordance with SEBI regulations where pricing is prescribed by SEBI (CA certificate
required)

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