Month: October 2019

Depository Receipts

Don’t Rush in Peek Hours

Don’t rush in peek hours and stuck up with system congestion. Act quick and complete all the Annual Filings in time without postponing it to the last date. Though it is practically un-imaginable, let us try to do our best and complete them soon.

In this edition we will be seeing about issue and transfer of Depository receipts as amended on 10th October, 2019. Our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST will follow the article.

CEO Saranya Deivasigamani,
CEO

Framework for issue of Depository Receipts

The Stock Exchange Board of India (SEBI) take and initiative followed by the budget announcement, that the Board will allow listed Indian companies to issue either equity, or debt, to investors on the overseas stock exchanges such as NYSE, Nasdaq and Hong Kong Stock Exchange.

The Board has drawn a framework for issue of Depository Receipt in reference with Section 41 of the Companies Act, 2013, Companies (Issue of Global Depository Receipts) Rules, 2014 (‘GDR Rules’), the Depository Receipts Scheme, 2014 (‘DR Scheme’), Reserve Bank of India (‘RBI’) notification dated December 15, 2014, Central Government notification dated September 18, 2019 and  Central Government notification dated October 07, 2019.

SEBI allows only Listed Company to issue or transfer Permissible Securities, for the purpose of issue of Depository Receipts (‘DRs’), subject to compliance with certain requirements.

Depository Receipt

As per Section 2(44) of the Companies Act, 2013, Depository Receipts (‘DRs’) means a foreign currency denominated instrument, listed on an international exchange, issued by a foreign depository in a permissible jurisdiction on the back of permissible securities issued or transferred to a domestic custodian and includes ‘global depository receipt’.

Foreign Depository

Foreign Depository (’FD’) means a person which:

(a) is not prohibited from acquiring permissible securities;

(b) is regulated in any of the Permissible Jurisdiction; and

(c) has legal capacity to issue DRs in the Permissible Jurisdiction where issue of DRs is proposed.

Eligibility

1. The Company should have been complied with SEBI (LODR), 2015.

2. Listed Company shall be eligible to issue or transfer Permissible Securities, for the purpose of issue of DRs, only if:

  • the Listed Company, any of its promoters, promoter group or directors or selling or transferring shareholders and their associates are not debarred from accessing the capital market by SEBI, not a wilful defaulter, not a fugitive economic offender.

Provided that, these restrictions above shall not apply to the persons or entities whose period of debarment is already over as on the date of filing of the document.

‘Transfer of permissible securities by existing holders’ means deposit of existing Permissible Securities of the Listed Company with a Domestic Custodian, for the purpose of issue of DRs, pursuant to formal agreement(s) among the Listed Company and the Foreign Depository.

The equity shareholders of the Listed Company shall tender their shares for participation in such listing of DRs.

Subsequent issue and listing of DRs, shall be done by passing a special resolution in terms of GDR Rules.

The Listed Company may seek in-principle and final approval from Recognized Stock Exchange as well as International Exchange. However, such issue or transfer of Permissible Securities for the purpose of issue of DRs shall be subsequent to, the receipt of trading approval from the Recognized Stock Exchange for the public offer.

Permissible Jurisdictions and International Exchanges
Permissible Jurisdiction shall mean jurisdictions as may be notified by the Central Government from time to time, pursuant to notification no. G.S.R. 669(E) dated September 18, 2019 in respect of sub-rule 1 of rule 9 of Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.

International Exchange(s) shall mean exchange(s) as may be notified by SEBI from time to time.

Obligation of the Listed Company

The obligation of the Listed Company is to:

  • Comply with extant laws relating to issuance of DRs, including, the Companies Act, 2013, the Foreign Exchange Management Act, 1999 (‘FEMA’), Prevention of Money-Laundering Act, 2002, and rules and regulations made thereunder.
  • Ensure that the DRs are issued only with underlying Permissible Securities.
  • Ensure that aggregate of the Permissible Securities is in compliance with the limits mentioned in FEMA.
  • Ensure that the agreement made with Foreign Depository is in compliance with limits mentioned in FEMA.
  • Through an intermediary, file a copy of the initial document with SEBI and Recognized Stock Exchange, receive comments within 7 days and deemed to have no comments if not received any response from SEBI. Also the Stock Exchange shall take into consideration of the SEBI’s comments and pass in-principle approval within 15 working days.
  • Ensure the public disclosure is made within 24 hours of date of filing.

Obligation of Indian Depository, Foreign Depository and Domestic Custodian

Indian Depositories, shall develop a system to ensure that aggregate holding of DR holders along with their holding, if any, through offshore derivative instruments and holding as a Foreign Portfolio Investor belonging to same investor group shall not exceed the limit on foreign holding under the FEMA and applicable SEBI Regulations.

The Foreign Depository shall not issue or pre-release the DRs unless the Domestic Custodian as confirmed the receipt of underlying Permissible Securities.

Domestic Custodian shall maintain records in respect of, and report to, Indian depositories all transactions in the nature of issue and cancellation of depository receipts, for the purpose of monitoring limits.

While working on DRs, we should not only check the laws of India, but also the jurisdiction where the Foreign Depository is registered.

Legal Terms

in pari delicto

adv. Latin for “in equal fault,” which means that two (or more) people are all at fault or are all guilty of a crime.

NewsBites

MCA Updates

  • Companies (Meetings of Board and its Powers) Amendment Rules 2019.

SEBI Updates

RBI Updates

  •  No major updates,

IT Updates

GST Updates