Moving ahead the Point No. e of above-stated guidelines on which PRI to PROI transfer is going to take place required extra concentration on Regulation 10 of FEMA 20 [I.e. Notification No. FEMA 20/2000-RB dated 3rd May 2000] which reads as follows:-

Regulation 10 of Notification under Review talks about Prior Permission of Reserve Bank in certain cases for Transfer of Security stated below:- Further Regulation 10 (A) (b) states any share/convertible debenture of an Indian Company, by way of sale, shall obtain the Government Approval for the transfer and thereafter apply to the Reserve Bank for its approval, which may be granted subject to such conditions as are considered necessary by Reserve Bank, including price at which such sale may be made.

Hence as on date most of NBFC activities are under 100% automatic route which does not require any government approval, therefore, the issue is to get the Prior Approval from Reserve Bank of India to transact the Transfer of Indian Company Shares to PROI.

On further extensive research, the requisite documents or application procedure/specimen to be submitted for prior approval is nowhere mention on RBI public domain. However as per Master Direction – Reporting under Foreign Exchange Management Act, 1999 [refer Notification No. RBI/FED/2015-16/13 FED Master Direction No.18/2015-16 dated 1st January 2016 amended and updated to 20th December 2017], it is noted that the transaction to be reported under Form Foreign Currency – Transfer of Shares (Form FC-TRS).

The financial reporting of transfer of shares between Residents and Non-residents and vice- versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt/date of payment of the amount of consideration. The onus of submission of the Form FC-TRS within the given time frame would be on the transferor/transferee, resident in India.

Moving forward the documents to be enclosed in Form FC-TRS are:-

1. Receipt of Consideration from Non-Resident (i.e. FIRC)
2. File FC-TRS electronically along with the attachments. Approval of FC-TRS by RBI. [Approval Status can be check online]
3. Submit Consent Letter duly signed by the seller & buyer OR their duly appointed Agent (in case of agent POA is required)
4. The shareholding pattern of Investee Company after the acquisition of shares by a PROI duly certified by Company Secretary.
5. Certificate from CA indicating the Fair value of Shares.
6. Declaration from Buyer to affect eligibility to acquire security under FDI Policy and existing Sectorial limits and Pricing Guidelines has complied.

The valuation of Share for Unlisted Company can be done as per any internationally accepted pricing methodology on arm’s length basis and transfer shall be made at or above the fair value determined as above. The minimum price shall be the fair value. However, for Listed Companies, the valuation of the share should read with SEBI (Issue of Capital and Disclosure Requirements) Regulation, 2009.

Form FC-TRS to be duly filled along with above requisite documents, the applicant is required to apply for prior permission of RBI to undertake the Permission for Share transfer of Indian Company i.e. PRI to Others i.e. PROI.

Opinion:

As of date, there are no strict/specific guidelines or regulation to submit form, procedure, and documents for prior permission of RBI before actual Transfer of Share is held however it is quite clear that transaction transfer of share has to be reported to RBI for approval along with Foreign Inward Remittance Certificate (FIRC) of consideration for the transaction.

The query is what if the corporate regulated by regulatory authority are in process of transfer of shares to non-residents. Speaking strictly regarding Non-Banking Financial Company regulated by RBI itself has issued circular for the prior approval requirement of Change in Management/Shareholding of Non-Banking Financial Company. Where the proposed shareholder is Non-Resident, the requirement of reporting the FC-TRS is before No Objection Certificate from RBI or after receiving No Objection Certificate. As far as available guidelines and regulation read with notification and circular at the time, is no specific for this requirement, the author believes the submission of report for transfer of shares to Non-Resident from Residents to RBI is after obtaining RBI no objection certificate for change in Management/Shareholding as per the Notification No. RBI/2015-16/122 DNBR (PD) CC.No. 065/03.10.001/2015-16 dated 9th July 2015.