Section 10 in The Foreign Exchange Management (Transfer Or Issue Of Security By A Person Resident Outside India) Regulations, 2000
10. Prior permission of Reserve Bank in certain cases for transfer of security.
A. Transfer by way of gift or sale by a person resident in India A person resident in India who proposes to transfer to a person resident outside India [not being erstwhile OCBs] [Added by G.S.R. 202(E), dated 17.3.2005 (w.e.f. 4.10.2004).](a)[(i) any security, by way of gift, shall make an application to the Reserve Bank for its approval; [Substituted by G.S.R. 504(E), dated 22.7.2005 (w.e.f. 25.7.2005).](ii)the Reserve bank may grant such approval on being satisfied of the following conditions:(a)the donee is eligible to hold such a security under Schedules 1, 4 and 5 of these regulations;(b)the gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme;(c)the applicable sectoral cap/foreign direct investment limit in the Indian company is not breached;(d)the donor and the donee are relatives as defined in section 6 of the Companies Act, 1956 (1 of 1956);(e)[ 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 financial year does not exceed the rupee equivalent of US $ 50,000.](f)such other conditions as considered necessary in public interest by the Reserve Bank;(iii)the application for approval referred to in sub-clause (i) shall contain the following information/ documents:(a)name and address of the donor and the donee;(b)relationship between the donor and the donee;(c)reasons for making the gift;(d)in case of Government dated securities and treasury bills and bonds, a certificate issued by a chartered accountant on the market value of such securities;(e)in case of units of domestic mutual funds and units of money market mutual funds, a certificate from the issuer on the net asset value of such security;(f)[ in case of shares or convertible debentures or warrants, a certificate from a chartered accountant or Merchant Banker registered with Securities and Exchange Board of India (SEBI) on the value of such securities according to the pricing guidelines stipulated by the Reserve Bank from time to time.] [Subistuted by Notification No. G.S.R. 436 (E), dated 30.6.2014 (w.e.f. 8.11.2005)](g)certificate from the concerned Indian company certifying that the proposed transfer of [shares or convertible debentures or warrants] [Substituted for the words "shares or convertible debentures" Notification No. G.S.R. 436 (E), dated 30.6.2014 (w.e.f. 8.11.2005)], by way of gift, from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of [shares or convertible debentures or warrants] [Substituted for the words "shares or convertible debentures" Notification No. G.S.R. 436 (E), dated 30.6.2014 (w.e.f. 8.11.2005)] to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company;](h)[ A declaration from the donee accepting partly paid shares or warrants that donee is aware of the liability as regards calls in arrear and consequences thereof.] [*Inserted by Notification No. G.S.R. 436 (E), dated 30.6.2014 (w.e.f. 8.11.2005)](b)[ any [shares or convertible debentures or warrants] [Substituted by G.S.R. 202(E), dated 17.3.2005 (w.r.e.f. 4.10.2004).] of an Indian company whose activities fall under Annexure B to Schedule 1, other than items nos. 1, 2 and 3 and subject to the Sectoral Limits specified therein, shall transfer such shares/ debentures without prior approval of Government and RBI if the same is by way of sale subject to the following:(i)that the Indian Company whose shares or convertible debentures are proposed to be transferred is not engaged in rendering any financial service;(ii)that the transfer does not fall within the purview of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; and(iii)that the concerned parties adhere to pricing guidelines, documentation and reporting requirements for such transfers as may be specified by Reserve Bank, from time to time.Explanation. - For the purpose of this Regulation, "financial services" shall mean service rendered by banking and non-banking companies regulated by the Reserve Bank, insurance, companies regulated by Insurance Regulatory and Development Authority (IRDA) and other companies regulated by any other financial regulator as the case maybe.]B. Transfer by way of sale not covered by regulation 9 by a person resident outside India.[** *] [Omitted by G.S.R. 202(E), dated 17.3.2005 (w.r.e.f. 4.10.2004).][A person resident outside India, may transfer [shares or convertible debentures or warrants] [Substituted by G.S.R. 202(E), dated 17.3.2005 (w.r.e.f. 4.10.2004).] of an Indian Company, without the prior permission of the Reserve Bank, by way of sale, to a person resident in India subject to the adherence to pricing guidelines, documentation and reporting requirements for such transfers as may be specified by Reserve Bank from time to time.][C. A person resident outside India may open an Escrow account with an authorized dealer bank in Indian Rupees in India, subject to the terms and conditions as specified in the Foreign Exchange Management (Deposit) Regulations, 2000, as amended from time to time for acquisition of [shares or convertible debentures or warrants] [Inserted by Notification No. G.S.R. 532(E) dated 5.3.2013 (w.e.f 8.5.2000)] through open offers/delisting/exit offers, subject to compliance with the relevant SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended from time to time. Such Escrow account may be funded by way of inward remittance through normal banking channel and/or by way of guarantee issued by an authorized dealer bank, subject to terms and conditions as specified in the Foreign Exchange Management (Guarantees) Regulations, as amended from time to time.][10A. [Inserted by Notification No. G.S.R. 537(E), dated 20.5.2016 (w.e.f. 8.5.2000).]In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, not more than twenty five per cent of the total consideration can be paid by the buyer on a deferred basis within a period not exceeding eighteen months from the date of the transfer agreement. For this purpose, if so agreed between the buyer and the seller, an escrow arrangement may be made between the buyer and the seller for an amount not more than twenty five per cent of the total consideration for a period not exceeding eighteen months from the date of the transfer agreement or if the total consideration is paid by the buyer to the seller, the seller may furnish an indemnity for an amount not more than twenty five per cent of the total consideration for a period not exceeding eighteen months from the date of the payment of the full consideration:Provided the total consideration finally paid for the shares must be compliant with the applicable pricing guidelines.]
