Issue and Purchase of Shares by NRIs & Foreigners

India is one of the largest and fastest growing economies in the world. There is a large number of Non-Resident Indian and Foreign National or Foreign entities interested in investing in companies in India. In this article, we look at the procedure for issuing shares to NRIs, foreign nationals and foreign entities and the related compliances.

Person Resident Outside India

A person resident outside India is a person resident outside India other than a citizen of Bangladesh or Pakistan or an entity incorporated outside India other than an entity in Bangladesh or Pakistan.

The Companies Act does not specify separate rules and regulations for NRIs. However, the Companies Act has a separate class called Persons Resident Outside India, which includes NRIs and Foreign Nationals. Hence, rules and regulations applying to Persons Resident Outside India would be responsible for NRIs in issuing shares.

Automatic Route for Issue of Shares by an Indian Company

Under FEMA regulations, an Indian Company can issue shares under the automatic route to a person resident outside India. The following are some of the types of companies that can avail the automatic route of FDI:

• Manufacturing company.
• Trading company.
• Small scale industrial company.
• Export Oriented Unit or a Unit in Free Trade Zone.
• Any other company.

Most types of activities and companies in India are eligible for 100% FDI through the automatic route. Only companies involved in some activities like defence equipment manufacturing, broadcasting, etc., require FDI under the approval route.

Payment for Share Issued to NRIs or Foreign National

An India company issuing shares to a person resident outside India should receive the payment for the shares through one of the following routes:

• Inward remittance through normal banking channel.
• Debit to NRE/FCNR account of the person concerned maintained with an authorised dealer or bank in India.

Filing for NRI or Foreign National Investment in India

For foreign investment made by NRIs and foreign nationals on a repatriable or non-repatriable basis, a report is to be filed with the Regional Office of the RBI within 30 days from the date of receipt of the amount and also another report in FC-GPR for the acquisition of right shares and bonus shares.

Details of FDI are to be furnished in Part A and B. Part A has to be filed by the company, through AD Category-1 bank, to the concerned Regional Office of RBI. Part B, which is an annual report of all investments made by the company during a financial year is required to be submitted directly by the company to the following address before 30th June every year.

The Director
Balance of Payment Statistical Division
Department of Statistical Analysis & Computer Services
Reserve bank of India
C 9, 8th Flor, Bandra-Kurla Complex,
Bandra (E), Mumbai – 400 051

Board Resolution for Issue of Shares to NRIs & Foreign Nationals

The following sample board resolution can be used to authorise the issue of shares to NRIs and Foreign Nationals.

RESOLVED that subject to the terms and conditions specified from time to time by the Reserve Bank of India and/or Central Government under the Foreign Exchange Management Act, 1999 and subject to such other approvals, permission and sanctions as may be considered necessary and subject to the applicable provisions, if any, of the Companies Act, 2013, and subject to such conditions as may be prescribed by any of the authorities while granting such approvals/permissions/sanctions, and further subject to the approval of the COmpany at a General Meeting the Board of DIrectors of the Company be and is hereby authorised to allow Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Perosns of Indian Origin (PIOs) to acquire shares/debentures of the Company through direct subscription or thorugh stock exchanges in India under Portfolio Investment Scheme, and/or in accordance with other permissible modes.

RESOLVED FURTHER that the Board of Directors of the COmpany be and is hereby authorised to do all usch acts, deeds, matters and things and to execute such documents or writings as may be necessary, proper or expedient for the purpose of giving effect to this resolution and for matters connected therewith or incidental or ancillary thereto.

RESOLVED FURTHER that the Company Secretary be directed to convene an Extraordinary General Meeting for this purpose and issue the notices with the relevant explanatory statement as per drafts placed before the meeting and approved.