RBI Circular on ‘Issue of Non convertible/ redeemable bonus preference shares or debentures – Clarifications’

RBI Circular on ‘Issue of Non convertible/ redeemable bonus preference shares or debentures – Clarifications’

1. The Reserve Bank of India issued a Circular on ‘Issue of Non convertible/ redeemable bonus preference shares or debentures – Clarifications’ on January 06, 2014. The web-link of the said Circular is as below for ready reference:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR84060114.pdf

2. Highlights of said Circular are as below:
A.P. (DIR Series) Circular No. 84 dated January 06, 2014 issued by the Reserve Bank of India, Foreign Exchange Department regarding ‘Issue of Non convertible/ redeemable bonus preference shares or debentures – Clarifications’

As per Regulation (2ii) and Regulation 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, as amended from time to time, equity shares, compulsorily and mandatorily convertible preference shares and compulsorily and mandatorily convertible debentures are treated as a part of share capital for the purpose of Foreign Direct Investment.

RBI has been receiving references from some Indian companies regarding issue of non-convertible/redeemable bonus preference shares or debentures to non-resident shareholders from the general reserve under a Scheme of Arrangement by a Court, under the provisions of the Companies Act, as applicable. So far, RBI has been granting permission for such issuances on a case-to-case basis.

On a review and with a view to rationalizing and simplifying the procedures, it has been decided that an Indian company may issue non-convertible/redeemable preference shares or debentures to non-resident shareholders, including the depositories that act as trustees for the ADR/ GDR holders, by way of distribution as bonus from its general reserves under a Scheme of Arrangement approved by a Court in India under the provisions of the Companies Act, as applicable, subject to no-objection from the Income Tax Authorities.

The above general permission to Indian companies is only for issue of non-convertible/ redeemable preference shares or debentures to non-resident shareholders by way of distribution as bonus from the general reserves. The issue of preference shares (excluding non-convertible/redeemable preference shares) and convertible debentures (excluding optionally convertible/partially convertible debentures) under the FDI scheme would continue to be subject to A.P. (DIR Series) Circular Nos.73 and 74 dated June 08, 2007 as hitherto.

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