Companies Act – Issue of Global Depository Receipts
Companies Act – Issue of Global Depository Receipts
A bank generally issues a depository receipt for representing the publicly traded securities of a foreign company. Similarly, for the Global Depository Receipts (GRD), the depository bank issues a certificate for purchasing the shares of a foreign company. These shares will be as a back up by creating security on the local exchange. The GRD represents a foreign company’s shares that cannot be traded in the local stock exchange.
Eligibility
A company eligible under the terms of the provisions and scheme of the Foreign Exchange Management Rules and Regulations are eligible to issue the global depository receipts.
Conditions
- If a company intends to issue the global depository receipts, then the board of directors must pass a resolution. Moreover, such a resolution authorises the company to issue depository receipts
- The company must receive prior approval from the shareholders. However, the approval of the shareholders must take place through a special resolution in the general meeting
- The company appoints an overseas depository bank. This is to issue the depository receipts. However, a domestic custodian bank keeps the underlying shares in its custody
- The company ensures that it complies to the provisions of the scheme and also the rules, guidelines and regulations of the Reserve Bank of India. The company should comply with it both before and after the issue of the depository receipts
- A merchant banker or a practising chartered accountant, cost accountant or company secretary are appointed to oversee the compliances of the depository receipts. They will place their compliance report at the meeting or the committee of the board of directors. If there is a committee of the board of directors, then such a committee must have an authorisation from the board. The board authorises the committee immediately after the closure of the formalities of the depository receipts issuance. This committee must have at least one independent director if the company requires
Manner and Form
The company issues the depository receipts by public offering, private placement or any other ways in the abroad. This can be under the trading platform or overseas listing. The issue of the depository receipts takes place against the new shares. This may be in accordance with the conditions of the Reserve Bank of India or Central Government from time to time. The issue of the depository receipts also takes place against the shares held by shareholders. This may also be in accordance with the conditions of the Reserve Bank of India or Central Government from time to time. The overseas depository bank abroad issues the depository receipts against the underlying shares which are in the name of the overseas depository bank.
Voting Rights
The one who the depository receipts can become a member of the company. But they can vote only after converting the depository receipts into underlying shares. The conversion should follow the scheme and the provisions of the Companies Act, 2013. The overseas depository will vote on behalf of the depository receipts holders. This takes place until the conversion of the depository receipts. The holders of the depository, the depository and the company agree to such a way of voting rights.
Proceeds of Issue
The proceeds of the issue of the depository receipts will be remitted either to one of the following
- Bank account in India
- Indian Bank that operates abroad
- Any foreign bank that has its operations in India (It should be under the Reserve Bank of India Act, 1934 as a scheduled bank). Such a bank must enter into an agreement stating that it will be responsible for furnishing all the information necessary for the sponsored issue of depository receipts. The proceeds of the sale will be credited to the shareholder’s bank accounts.
Non Applicability for Certain Provisions of the Act
The public issue of debentures and shares are not applicable for the issue of the depository receipts abroad. The offer document prepared for the issue of the depository receipts cannot be treated as the prospectus, as an offer document applicable to a prospectus or as an offer document that does not apply for the depository receipts offer document. Register of Members of the company enters the name of the overseas depository bank. This is until the redemption of the depository receipts.
The Government of India amended these rules as the Companies (Issue of Global Depository Receipts) Amendment Rules 2020.
