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Pricing, documentation, filing and other compliance requirements

Please note that this portion (Part - II) of the study material is optional and will not be tested towards final evaluation. We encourage you to read this section to gain superior knowledge and strategic insights into how FDI actually works. Part III (Structuring Joint Ventures) and Part IV (Taking Money Out) are compulsory and you may be tested on those areas.

1.  Instruments that can be issued to a non-resident under the FDI Route:

A non-resident can subscribe to equity shares, or fully and mandatorily convertible preference shares and debentures with put and call options (subjected to certain conditions). Note that optionally convertible or redeemable preference shares or debentures (Optionally Convertible or Redeemable Securities) are considered as debt and cannot be issued to non-residents under the FDI route. Optionally Convertible or Redeemable Securities can be issued under the External Commercial Borrowings (ECB) policy, which is very restrictive.

2. Pricing for i
nvestment and sale of securities:


A foreigner may purchase securities of an Indian company i) from a resident,(please refer to the note in the end of the topic) or ii) from a non-resident, or iii) subscribe to fresh shares issued by the company. The price at which he can acquire shares of an Indian company is governed by the Foreign Exchange Management Act (FEMA).

Transfer from a resident to a non-resident

A non-resident (including foreign entities, NRI, FIIs) can purchase securities of an Indian company from a resident.
 under a private arrangement. In such a case, as money is coming into India, the FDI Policy imposes a floor price. The minimum permissible price at which shares can be sold to a non-resident must be determined by a Chartered Accountant or SEBI Registered Category I Merchant Banker (in case of an unlisted company) as per the discounted free cash flow method. In case of a listed company, the floor price is computed by looking at the average historical market prices for 2 weeks and 6 months (detailed methodology is explained in Regulation 76 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Transfer from a non-resident to a resident

In this case a ceiling is applied by the FDI policy. Transfer of existing shares by any non-resident to a resident shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident as described above.

Filing requirements
: Form FC-TRS is required to be submitted to the AD Category-I Bank in case of a transfer from a resident to a non-resident or vice versa, within 60 days from the date of receipt of the amount of consideration.  The resident has the responsibility of submission of the form. The form is then submitted by the AD-Category I Bank to the RBI.

Pricing issues also emerge with respect to foreign investors holding put options – a put option enables the foreigner to compel the Indian promoters to purchase its shares on exercise of the option. In January 2014, the RBI issued fresh pricing for price of securities sold by exercising options. In case of put options, the price is determined on the basis of the type of security sold, as follows:

  • The price of equity shares must be capped on the basis of a specific method known as the return on equity method (which calculates the ratio of profits after tax to the total net-worth).
  • The price of any convertible instruments (such as compulsorily convertible preference shares or compulsorily convertible debentures) must be arrived at in accordance with any internationally accepted pricing methodology (for example - return on equity, discounted cash flow, book value are some of the internationally accepted pricing methods). A SEBI registered Category I Merchant Banker or a Chartered Accountant is responsible for providing a certificate for arriving at the price. 

 Transfer from a non-resident to a non-resident

Price of shares purchased by a non-resident from another non-resident shareholder is not regulated under FDI Policy, as the transaction does not involve inflow or outflow of foreign exchange.


iv) Subscription to a company's shares

As per the FDI Policy, price of shares issued to persons resident outside India under the FDI Policy, shall not be less than -

  • in case of a listed company - the price worked out in accordance with the SEBI guidelines, as applicable;
  • in case of an unlisted company - fair valuation of shares done by a SEBI registered Category - I Merchant Banker or a Chartered Accountant as per the discounted free cash flow method. The valuation guidelines issued by RBI can be accessed here

3.  Manner of transfer of consideration:

The consideration for instruments purchased by a non-resident must be remitted into India through normal banking channels and shall be subjected to a Know Your Customer (KYC) check by the receiving bank (Authorised Dealer Category-I bank). If the receiving bank is different from the AD Category-I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category-I bank carrying out the transaction along with the Form FC-TRS.     

4.  Documentation
- Sale from resident to non-resident:

(a) Consent letter signed by the seller and buyer or their duly appointed agent indicating the details of transfer i.e. number of shares to be transferred, the name of the investee company whose shares are being transferred and the price at which shares are being transferred. In case there is no formal Sale Agreement, letters exchanged to this effect may be kept on record.

Note: If the consent Letter has been signed by their duly appointed agent, the power of attorney document executed by the seller/buyer authorizing the agent to purchase/sell shares is also required.


(b) The shareholding pattern of the investee company after the acquisition of shares by a person resident outside India showing equity participation of residents and non-residents category-wise and its percentage of paid up capital obtained by the seller/buyer or their duly appointed agent from the company, where any sectoral cap or limits have been prescribed.

(c) Certificate indicating fair value of shares from a Chartered Accountant.

(d) Undertaking from the foreigner that he is eligible to acquire securities under the FDI policy and that the sectoral limits and pricing guidelines have been complied with.

(e) Copy of Broker‘s note (if sale is made on Stock Exchange)

(f) If the purchaser is a foreign institutional investor or its sub-account purchasing under the FDI route, an undertaking from the FII or the sub account that the ceilings for investment as prescribed by SEBI have not been breached.

5. Process of money transfer and reporting:

The Authorized Dealer Bank (AD) which receives the foreign investment issues a Foreign Inward Remittance Certificate (FIRC) to the Indian Company. An Indian company receiving investment from outside India for issuing shares / convertible debentures / preference shares under the FDI Scheme, should report the details of the amount of consideration to the Regional Office of the Reserve Bank, through the AD in the prescribed format for advance reporting (Advance Reporting Form) (Annex 5 of the FDI Policy), along with the following documents:

  • Copies of the FIRC
  • A Know Your Customer report in the prescribed format

The report would be acknowledged by the Regional Office concerned, which will allot a Unique Identification Number (UIN) for the amount reported.

6. Process for issue of Instruments:


If a foreigner has subscribed to fresh securities of the Indian company, it may issue shares within a maximum period of 6 months from receiving investment. The Indian company must file Form FC-GPR (as per the format in Annex 1 of the FDI Policy) through its authorized dealer, with the RBI, within 30 days from the date of issue of shares. Form FC-GPR must be signed by the Managing Director or a Director or Secretary of the company.

In addition, the following documents must be filed with the Form FC-GPR:

  • A certificate from the Company Secretary of the company certifying, inter-alia, that the requirements of the Companies Act, 1956, conditions of any Government approval are complied with.


    Note: For companies with paid up capital with less than INR 5 crore, the certificate can be given by a practicing company secretary.


  • A certificate from Statutory Auditor or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
  • The report of receipt of consideration as well as Form FC-GPR have to be submitted by the AD Category-I bank to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated.

7. Annual reporting of shareholding to RBI

An annual return on Foreign Liabilities and Assets (Annex 7) should be filed on an annual basis by the Indian company directly with the Reserve Bank, by 31st of July every year. The return pertains to investments by way of direct or portfolio investments, reinvested earnings, other capital investment in the Indian company made from 1st April to 31st March of the previous year.

For reference, the Consolidated FDI policy of 17 April 2014 can be accessed at this link


        Note 1. Resident means any of the following, under Indian foreign exchange regulations:
  • an individual residing in India for more than one hundred and eighty-two days during the course of the preceding financial year excluding individuals who have gone out of India or who stays outside India, for taking up employment or carrying out business outside India, or for any other purpose which indicates that he would stay outside India for an uncertain period;
  • a person who has come to or stays in India, in either case, otherwise than for taking up employment or carrying out business in India or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
  • any person or body corporate registered or incorporated in India; an office, branch or agency in India owned or controlled by a person resident outside India;
  • or an office, branch or agency outside India owned or controlled by a person resident in India).

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